ACE and 40 other higher education associations are urging the Internal Revenue Service (IRS) to withdraw a Trump administration proposal that could strip private, nonprofit colleges and universities of their tax-exempt status over alleged racial discrimination in admissions, scholarships, and other campus programs.
In comments submitted to the IRS, the associations argue that the proposal exceeds the agency's legal authority, fails to define what conduct could jeopardize an institution's tax-exempt status, and leaves colleges vulnerable to politically motivated enforcement.
The Treasury Department and IRS announced the proposal Sept. 3 as part of the administration's broader effort to combat what it considers racial discrimination in education. The rule would apply to private schools from elementary through higher education, potentially affecting as many as 18,000 institutions nationwide.
Under the proposal, schools could lose their tax-exempt status if the IRS finds racial or ethnic discrimination in any program they administer or support, regardless of intent or whether the conduct is otherwise lawful.
ACE President Ted Mitchell challenged that approach in an interview last month with The Wall Street Journal.
“Our members are not panicked about this,” Mitchell said. “We’ve seen this movie before, and there’s nothing new in this, except for the fact that the new weapon is tax-exempt status.”
Challenges to the Legal Basis for the Rule
At the heart of the associations' objections is the question of how much authority the IRS has to decide when a school should lose its tax-exempt status.
The proposed rule draws on the Supreme Court's 1983 decision in Bob Jones University v. United States, which upheld the IRS's decision to revoke the university's tax-exempt status because it prohibited interracial relationships.
But the associations argue that the ruling set a high bar for revoking tax-exempt status, allowing the IRS to do so only when an institution's policies clearly violate a fundamental and well-established national policy. They contend that the proposed rule goes much further, potentially allowing the IRS to penalize colleges for isolated incidents, unintentional conduct, or legally protected activities, including speech protected by the First Amendment.
The associations also challenge the administration's reliance on the Supreme Court's 2023 decision on race-conscious college admissions, which did not address tax-exempt status or give the IRS authority to decide what constitutes discrimination across campus programs.
The comments emphasize that colleges and universities are committed to complying with federal civil rights laws. The concern is that the IRS would have wide discretion to decide what constitutes discrimination without clear legal limits.
Colleges Could Face Investigations Without Clear Protections
The associations also warn that the proposal provides few details about how the IRS would enforce the rule. It does not explain how investigations would begin, what evidence the agency would consider, or what opportunities colleges would have to respond.
That uncertainty could leave institutions unsure about which activities might trigger an investigation and make them vulnerable to arbitrary or politically motivated enforcement.
Mitchell raised these concerns when the rule was announced, telling The Washington Post that the administration was following a familiar pattern:
“Discover cudgel. Wave cudgel. Find violations of laws that don’t exist. Threaten retribution. Go to court. We’ve seen this over and over and over again,” he said.
Steven Bloom, ACE assistant vice president for government relations, warned in an interview with the Los Angeles Times that the proposed regulations could have a “chilling effect” on colleges.
If the IRS moves forward, the associations say it must set clear standards for investigations, give institutions notice and a fair chance to respond, and preserve their tax-exempt status while legal challenges are pending.
What's at Stake for Students and Communities
The comments warn that losing tax-exempt status could jeopardize the charitable donations, financial aid, research funding, and low-cost borrowing that nonprofit colleges rely on. The financial strain could force institutions to cut programs or divert resources away from students.
The financial stakes are substantial: higher education received an estimated $78.8 billion in charitable support in fiscal year 2025, including $49.5 billion for private, nonprofit institutions.
Much of that support helps make college more affordable. In the 2024–25 academic year, undergraduate students received approximately $67.4 billion in institutional grant aid, compared with $46.3 billion in federal student loans. Colleges and universities also spent $33.4 billion from their endowments in 2025, with nearly half going toward student financial aid.
The associations warn that the consequences could be particularly serious for academic medical centers and teaching hospitals, which rely on charitable support for medical education, research, and patient care.
The effects could also spread through local economies. Private, nonprofit colleges and universities employed approximately 2 million people in 2024 and generated an estimated $839 billion in economic impact, according to the comments.
The associations are urging the IRS to withdraw the proposal entirely or, at a minimum, substantially narrow it and establish clear protections for institutions facing investigations.