Private schools serving Beverly Hills, Bel Air and Holmby Hills families face new federal scrutiny over race-conscious programs under a rule proposed Thursday, Sept. 3.

The Treasury Department and Internal Revenue Service (IRS) want to strip tax-exempt status from private schools and colleges that provide race-based admissions preferences, scholarships or support programs. The agencies estimate up to 18,000 institutions nationwide could be affected, the Los Angeles Times reported.

If finalized, the rule would take effect for tax years beginning on or after May 31, 2027. It applies even to schools that receive no federal funding.

Harvard-Westlake, whose middle school campus sits on North Faring Road in Holmby Hills, states on its website that financial aid is entirely need-based. The school charges $54,900 in tuition for 2026-2027, and about 21% of students receive aid. But Harvard-Westlake also runs affinity groups, an annual diversity recruiting fair and a Pollyanna Conference for area independent schools. Whether those programs fall under the proposed rule's broad language covering "every other school-administered or school-supported program" remains unclear.

Marymount High School on Sunset Boulevard spends $2.1 million annually on need-based financial assistance and has grown its share of students of color from 18% in 2002 to 44% in the 2024-2025 school year, according to the school's website. Marymount also participates in the National Hispanic and QuestBridge Scholar programs, though it is not confirmed whether those would trigger the rule.

The Buckley School requires every ninth grader to take a course called "Intersections of Identity" and maintains student affinity groups including a Black Student Union, Latinos Unidos and an Asian American & Pacific Islander Student Association. Curtis School, a K-6 campus on Mulholland Drive, lists a nondiscrimination policy covering race in its admissions and scholarship programs.

None of the four schools had issued public statements responding to the proposal as of Sept. 4.

The rule would not apply to religious institutions choosing students by faith, and it would still allow schools to help disadvantaged students using race-neutral criteria such as family income or first-generation status, the New York Post reported.

Losing 501(c)(3) status would eliminate the tax deductibility of donor contributions, according to Joe Rosenberg, a senior fellow at the Urban-Brookings Tax Policy Center, as CNBC reported. That could squeeze fundraising at tuition-dependent schools.

Treasury Secretary Scott Bessent said in a statement that rebranding race-based preferences under labels like equity or diversity does not change their discriminatory nature. IRS Chief Executive Frank Bisignano said the regulations put institutions on notice and that schools engaging in racial discrimination should expect to lose their status.

Steven Bloom, assistant vice president of government relations at the American Council on Education, told the Los Angeles Times the rule would have "a chilling effect on the behavior of folks on campus" because few institutions can afford to fight in court.

UC Berkeley law professor Brian Galle called the rule "obviously illegal" and predicted it would not survive a legal challenge, the Los Angeles Times reported.

The American Association of University Professors (AAUP) said it is considering legal action. The proposal faces a roughly 60-day public comment period expected to close in early November.