Proposed Regulations on DEI/Racial Inequities Could Be Released Very Soon

What happened:
The White House Office of Information and Regulatory Affairs (OIRA) has concluded its review of a soon-to-be-released proposed IRS regulation (RIN 1545-BS05) that could reshape how 501(c)(3) charitable nonprofits address racial inequities in their communities. NCN expects the proposal could be published within days or weeks. OIRA describes it as “guidance on the application of the fundamental public policy against racial discrimination in schools.”

The legal background:
Tax experts believe the administration may use the proposal to expand the “fundamental public policy” doctrine established by the U.S. Supreme Court in Bob Jones University v. United States. In that case, the Court upheld the IRS’s revocation of a university’s tax-exempt status because its racially discriminatory practices violated a “fundamental national public policy” — a doctrine that has historically been applied narrowly, largely to schools that exclude students by race.

Why it matters:
It is possible the IRS could try to use this doctrine to threaten revocation of tax-exempt status for charitable nonprofits that engage in Diversity, Equity, and Inclusion practices — even though courts have continued to uphold many DEI practices as lawful. The administration has long argued that certain DEI practices are illegal, despite that judicial record. Any expansion of the “fundamental public policy” doctrine beyond its historic, narrow application to racially discriminatory school admissions would be a significant and legally contested shift, with implications reaching well beyond schools.

Where things stand:
The proposed rule has not yet been published. Once it is, it will open a formal public comment period. NCN is working closely with national civil rights organizations and will provide resources to help nonprofits engage once the text is available. PANO will share the proposal and analysis as soon as it is released — this is one to watch closely in the coming weeks.

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