Disclaimer: This content does not constitute legal advice. You should not act, or refrain from acting, based on the information provided without getting specific advice from your lawyer.
Editor’s note: This post condenses a short series of newsletters distributed to Insights subscribers in September and October 2026.
On the heels of the IRS’s September 3, 2026 announcement of a proposed rules change that would affect the nonprofit status of thousands of independent schools, Commons & Commons shared initial thoughts on the proposal. Here, we expand on those thoughts in an attempt to help schools think through the implications of the change, and to help guide schools’ responses within the comment period, which ended November 3, 2026.
Under the proposed rule, independent schools would be required to operate in a race-neutral manner in all respects in order to maintain their tax-exempt status. The broad language in the proposal offers little detail in terms of how far, and how deep, the IRS will look into an individual school’s policies and actions for compliance, and the change would take effect in summer 2027 for most schools. This combination of ambiguity and a short timeline presents a serious challenge for schools already operating in a difficult environment.
Schools’ Preparedness for the Proposed Change
We invited Insights subscribers to take part in a short, anonymous survey. Highlights from the responses were as follows:
80% of respondents said their schools run at least one program with a racial, ethnic, or national origin criterion. The most frequently cited programs were affinity groups, diversity in the curriculum, and a diversity (or similar) executive position in the school's administration.
87% have not budgeted or planned for a policy review to mitigate any potential exposure or risk.
Based on responses about the projected cost of a policy review by outside legal counsel, the average cost of a policy review is expected to be approximately $20,000. Multiple schools estimated the cost of this minimal compliance effort will be in excess of $50,000 for their school.
About the respondents:
60% K-12, 33% middle/high school, 7% high school
80% co-ed, 20% single-sex
93% day-only, 7% primarily day with some boarding
73% no religious affiliation, 20% other Christian, 7% Catholic
53% suburban, 40% urban, 7% rural
Scope and Criteria for Application
The rule would take the Supreme Court’s decision in Students for Fair Admissions, Inc. v. Presidents and Fellows of Harvard College, 600 U.S. 181, 143 S. Ct. 2141, 216 L.Ed.2d 857 (2023), and apply it much more broadly, going beyond how a school considers race and other factors in admissions. Under the new rule, schools would lose nonprofit status if they “adopt, maintain, or enforce any policy or practice that discriminates on the basis of race, color, or national or ethnic origin in the administration of any educational policy, admissions policy, scholarship or loan program, athletic program, or other school-administered or supported program.”
What does this mean? While it might be clear what is meant by scholarships, loans, and athletics, it is not clear what is (and isn’t) meant by “educational policy” or “other school-administered or supported program.” Would this apply to which holidays a school may observe, and how they are observed? What about portions of the curriculum that address historical discrimination or oppression? Does the requirement of race-neutrality extend to hiring and employment practices? It would seem so, but under which of the above categories? And of course, how will this dovetail with accreditation processes, outstanding grant proposals, and specifically funded charitable gifts?
Implications for Religious Schools
Much has been made of the fact that the proposal provides an exemption for religious schools, but it is important to recognize the probable limitations of this exemption. Specifically, a religious school would be permitted to continue to discriminate on the basis of religion, but it seems likely that the school’s religious mission would not provide a shield from the rule in other areas: any program at that school administered with a racial, ethnic, or national-origin criterion would still be subject to scrutiny. (See Bob Jones Univ. v. United States, 461 U.S. 574, 103 S. Ct. 2017, 76 L. Ed. 2d 157 (1983).)
Challenging a Determination if the Rule is Enacted
It seems likely that a school will receive a notice of examination for any tax year beginning after the effective date of the rule (currently proposed to be any tax year beginning after May 31, 2027). The IRS will require the school to submit evidence and answer questions as requested, and if they believe this new rule is violated, will issue an adverse determination notice that tax-exempt status is revoked. A bill for unpaid taxes will follow, leaving the school to proceed to an appropriate federal court to appeal the decision. Unlike the standard IRS examination based on financials, it is unclear how an examination of compliance with this new rule would proceed.
Governance and Development
With the loss of tax exemption, a school would be forced to consider converting to a for-profit model. This would be a shift away from the transparency and accountability that are hallmarks of the nonprofit governance model, which provides reassurance to families that the funds they provide are entirely or primarily used for education. In many states, nonprofits also allow for volunteer contributions of “time and talent” (providing the reassurance of statutory indemnity to volunteers) and encourage donations of “treasure” under the income tax deduction regimes in place at the federal as well as the state level. The income tax deduction is a necessary incentive for donors who have other choices. No school wants to find themselves in a situation where they have to advise donors that their gift is no longer tax-deductible.
Making a Comment
The proposed regulations are not changes to the law itself (the Internal Revenue Code), but are instead a change to the way that the law is enforced by the US Department of the Treasury.
Anyone, as an individual or an organization, has the opportunity to offer a comment to the proposed rule, and when the Treasury implements the rule, it must respond to “significant” and “relevant” comments.
A comment likely to rise to the level of significant and/or relevant is one that concretely addresses the potential impact of the rule, offering a clear description of how the rule will impact the private school community.
Identify the particular portion of the proposed rule you are commenting on by quoting the text.
State your argument clearly, and then provide as concisely as possible the points in support of your argument, drawing your conclusion and citing any evidence you have in support.
Make clear what your recommendation is.
You may have strong opinions about the advisability of this change overall, and if so, you should make a clear argument to support your position. You can certainly advocate to have the rule change withdrawn or abandoned.
While you can provide your name (or comment anonymously), do not provide any personally identifiable information in the comment. Do, however, speak from your lived experience as the basis of your comment. You do not need to cite studies, surveys, or legal precedent to make an effective comment.
We offer a sample comment below to help your thinking if you write your own substantive comment. Here we’ve focused on just one item that we believe is of particular practical concern, having to do with the timing of implementation of these proposed rules:
__________________
The proposed regulation applicability date will not give affected K-12 independent private schools across the country sufficient time to prepare for implementation of a rule that, if violated, would have drastic effects on their core organizational structure, and as proposed, offers little in the way of concrete guidance as to how a school will demonstrate compliance.
The proposal states: “These regulations are proposed to apply to taxable years of private schools beginning after May 31, 2027. This proposed applicability date will allow any private schools that may need to amend their existing policies, including admissions or scholarship policies, to do so before the beginning of any taxable year to which the final regulations are expected to apply.”
Based on our significant experience working with private schools across the country, this applicability date will not allow sufficient time for required changes to be made. The great majority of independent private schools across the country are not-for-profit institutions that follow a fiscal year beginning and ending in the summer, typically running from 7/1/xx to 6/30/xx. The typical school will enroll its students and hire faculty and staff during one fiscal year, who will attend and be employed during the next fiscal year. As proposed, schools will have made critical, fundamental operational decisions without the benefit of the final rule. Most schools will have one month to analyze and implement the final text — a month that is already full of graduating students and other end-of-year activity.
This significant alteration in how a school selects and educates its students should not be implemented with such a compressed applicability timeline. The proposed rule, if implemented at all, should become applicable in the tax year next succeeding the first year after publication, or in the alternative, the finalization date should stretch to September 30, 2027 at the very earliest.
__________________
Your own comment, should you make one, could focus on this, or any of the other aspects of the proposed rule change that will make it particularly onerous for your school and its community. Assuming that taking a position on the substance of the rule may represent a political concern for some contemplating a comment, we believe there are plenty of ways to comment productively while remaining neutral on the question of race and ethnic criteria in school policies and programs.
Note: The IRS’s public comment period ended November 3, 2026, and a public hearing will be held December 2, 2026.
If you have questions about this or other matters related to our practice areas, please click the Contact Us button to get in touch. We’ll be happy to speak with you. You can also subscribe to our Insights newsletter, where we share updates on relevant topics a few times a year.