The Trump administration wants to strip tax-exempt status from any private school that maintains race-based preferences in admissions, scholarships, or programs — a regulation that could hit 18,000 institutions and signals the federal government is willing to use tax policy as a cudgel against DEI ideology in American education.

Treasury Secretary Scott Bessent announced the proposed IRS rule Thursday, taking direct aim at schools that use race as a factor in who gets in, who gets money, and who gets access to facilities. "Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature," Bessent said in a statement.

The proposed regulation, issued under Internal Revenue Code Section 501(c)(3), would deny federal tax-exempt status to private schools and colleges that maintain or enforce policies discriminating based on race, color, or national or ethnic origin. It covers admissions, educational policies, scholarships and loans, athletics, and other school-administered programs. If finalized, it would take effect after May 2027.

The Los Angeles Times framed the move as "a significant escalation" in Trump's campaign to "eradicate diversity programs directed at Black, Latino and other minority students." Bloomberg Tax, meanwhile, stuck to the mechanics: the IRS issued proposed regulations on what disqualifies a private school from tax-exempt status. The Times buried the legal precedent; Bloomberg didn't mention it at all.

Here's the precedent that matters. Bob Jones University, a Christian school in South Carolina, lost its tax-exempt status in the 1970s because it banned interracial dating and marriage. The Supreme Court upheld the IRS's decision. That school eventually ended the ban and regained its status in 2017. The difference now: the Trump administration is flipping the logic — arguing that race-based preferences are themselves discriminatory, just in the other direction.

The administration says it's restoring merit. Critics say it's an ideological purge. The truth is it's both — and that's the problem. Federal law already bars the IRS from targeting organizations for ideological reasons, and federal officials are prohibited from directing IRS investigations. But a broadly written regulation that lets the Treasury Secretary decide what counts as "discriminatory" is a lever that cuts both ways.

Scores of universities have already shuttered or rebranded their DEI offices under White House pressure. The Justice Department has opened investigations into medical schools it accuses of favoring Black and Hispanic students in admissions, citing Title IV of the Civil Rights Act. Harvard, which fought Trump last year when he threatened its tax-exempt status, argued there was "no legal basis" for the move and said it would force cuts to financial aid and medical research.

The Treasury Department and IRS estimate up to 18,000 private schools, colleges, and other education institutions could be affected. For many, tax-exempt status saves millions annually and makes donor contributions tax-deductible — the financial lifeblood of private education.

The question isn't whether race-based preferences violate civil rights law — the Supreme Court already said they do in college admissions. The question is whether the tax code is the right enforcement tool, and what happens when an administration you don't like picks it up and aims it somewhere else.