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Colleges face major tax blow in Trump’s proposed IRS rules on race

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1 year ago

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The Trump administration is privately considering unleashing what advocates and critics agree would be one of its biggest cudgels yet to pressure colleges to end slews of programs and practices benefiting students who are racial minorities.

The Treasury Department is weighing a change to Internal Revenue Service policies to allow the revocation of tax-exempt status for colleges that consider race in student admissions, scholarships and other areas, Bloomberg News reported last week.

If enacted, it would take the administration’s reshaping of higher education well beyond the public battles with Harvard University and Columbia University. Nonprofit status is core to the finances of more than 1,500 private colleges and universities — from wealthy bastions such as Duke and Vanderbilt to smaller schools including Vermont’s Middlebury and Oregon’s Willamette. Revoking that wouldn’t just threaten billions in additional taxes, it would cut off the pipeline of philanthropy that has seeded and expanded schools for decades.

Even groups known to back conservative ideas were startled.

“I’ve never seen anything like this,” said Armand Alacbay, senior vice president of strategy at the American Council of Trustees and Alumni. For many universities, “losing their tax-exempt status would be existential, as they’re highly reliant on philanthropic support.”

The proposal would have to make it through an extensive rulemaking process, legal experts say, and even if the measure is put in place and the IRS seeks to revoke a college’s tax perks, the school would likely take the fight to court.

Nonprofit status frees schools from paying corporate income tax, helps them get breaks on property taxes and allows them to sell bonds that pay tax-exempt interest, reducing borrowing costs. It also boosts funding by incentivizing donors, letting them deduct gifts from their own taxes.

Trump has threatened to revoke Harvard’s tax-exempt status in posts on his Truth Social platform. He’s also signaled interest in challenging it elsewhere. “Tax-exempt status, that’s a privilege – it’s really a privilege,” Trump said in the Oval Office in April. “And it’s been abused by a lot more than Harvard, too.”

His threat was swiftly decried as out of his jurisdiction by Democrats and some Republicans. But the Treasury Department’s proposals could bring his administration a step closer toward revoking Harvard’s tax status and potentially challenging other schools if they don’t abide by officials’ demands to adopt race-blind policies and programs.

A Treasury Department representative declined to comment. The IRS didn’t respond to a request for comment.

‘Very damaging’

Many schools would find it far harder than Harvard to operate without tax-exempt status, leaving them virtually no choice but to bend to administration demands.

“If they revoked Harvard’s tax exemption, that would be damaging to Harvard,” said Adam Stern, co-head of research at Breckinridge Capital Advisors. “That would be very damaging to schools that have less resources.”

Colleges have been quietly acknowledging the growing risk to their tax exemptions. The president of Duke University called out “threats to our nonprofit status” this month in a public update on the school’s effort to reduce spending. Emory and Northwestern have mentioned similar risks in their bond documents.

“Certainly, this is a new worry they have to deal with,” said Robert Romashko, a lawyer specializing in taxes for Husch Blackwell LLP.

It comes on top of Trump administration attempts to freeze federal funding for some institutions and rein in enrollment by international students. Congress is also considering a steep tax increase for the wealthiest schools’ endowments.

Without Congress

The proposals under review in the Treasury’s Office of Tax Policy were drawn up as IRS revenue procedures — a form of guidance for interpreting and enforcing tax laws. If enacted, they would pave the way for the IRS to bar nonprofit schools from remaining tax exempt if they favor any racial groups in matters such as financial assistance, loans, use of facilities or other programs, according to people with knowledge of the deliberations. They could take effect without congressional approval.

The proposals would amount to a “sea change” in the IRS’s rules for nonprofits, said Philip Hackney, a law professor at the University of Pittsburgh who spent time in the agency’s office of the chief counsel. Schools that have helped minority groups narrow historic gaps in wealth and education in the U.S. could end up getting punished for those efforts.

“Charity has long included an idea of remedying discrimination,” he said. “This would be a monumental change in terms of charitable law. We’ve built the whole structure on that basis, and the idea of saying all of that stuff was wrong seems incoherent.”

Critics split

News of the proposals has stirred excitement among some conservative activists encouraging the administration’s efforts to end diversity, equity and inclusion programs in higher education.

“The Treasury Department should absolutely enact this policy of stripping tax-exempt status from universities that discriminate on the basis of race,” Christopher Rufo, one of the preeminent voices of that movement, wrote on X. “No quarter for left-wing racialism in America’s institutions.”

The American Council of Trustees and Alumni has also criticized universities over DEI policies and hiring practices that they allege take race and other protected characteristics into account. Still, Alacbay warned that using tax status as a lever could open a “Pandora’s box” with far-ranging consequences as future administrations pursue their own agendas.

“One should be very circumspect about using tax law as a lever to enforce other public policies,” Alacbay said. “There are many other, more established ways to enforce civil rights laws. I would say let those existing enforcement mechanisms play out.”

Others welcome the idea of the IRS playing a more active role, which could extend to other controversial topics.

“It’s very easy to see how a policy would apply beyond race” to issues like gender and gender identity, said Adam Kissel, a visiting fellow in The Heritage Foundation’s Center for Education Policy. While enforcement might veer from administration to administration, he said, that’s the reality of a messy democratic process “in the absence of clear guidance and language from Congress.”

‘It’s alarming’

For the proposal to become established as an enforceable revenue procedure, it would have to work its way through the lengthy requirements of the Administrative Procedure Act, according to Megan Brackney, a tax controversy attorney and partner at Kostelanetz LLP. That includes issuing a formal notice, allowing affected parties to provide feedback, then reviewing and addressing the comments before finalizing the revenue procedure. 

“It’s alarming, but there’s a lot that has to happen for this change to be made if they really decide to go through with it,” she said. “It doesn’t mean they can’t do it, they just can’t do it tomorrow.” 

The Trump administration has run into this before. In 2018, the IRS wanted to drop rules requiring some nonprofits to identify major donors in their tax filings. A federal judge blocked the change, saying the agency had to obey the Administrative Procedure Act before updating the rules. 

If the IRS’s internal guidance is changed, it still needs to follow the law to find the basis to legitimately revoke a school’s tax exemption, Hackney said. And despite Trump’s views, Congress and judges haven’t declared DEI efforts broadly illegal or unconstitutional, he said.

Charities also lose their tax perks by violating a fundamental public policy. That standard was set in 1983 when the Supreme Court upheld the IRS’s authority to revoke Bob Jones University’s tax exemption, citing policies banning interracial dating on campus. 

Ellen Aprill, a retired law professor and senior scholar in residence at the University of California at Los Angeles’ law school, said it’s hard to argue that Trump’s stance against DEI constitutes a fundamental public policy.

“The anti-DEI policy from the executive branch is one we’ve only seen in the months since Trump took office for a second time,” she said. “Can you imagine the whipsaw if all nonprofits had to adapt to the new positions of the executive branch?”

It would likely take years for the IRS to ultimately revoke a school’s tax benefits through a long, established process including audits and opportunities for remedy, appeals and challenges in court. 

Meanwhile, Brackney said, the proposal may have an impact on schools, even if it never gains legal teeth. 

“It has an effect to wind everybody up and make everybody nervous to change their behavior, even before the government takes the appropriate action to make it an enforceable rule,” she said.

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Accounting

SEC’s Semiannual Reporting Proposal Faces Investor Pushback: What CFOs Need to Know

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1 day ago

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August 25, 2026

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U.S. Securities and Exchange Commission (SEC)

A proposal from the U.S. Securities and Exchange Commission to potentially shift some public companies away from quarterly financial reporting toward a semiannual model is drawing significant pushback from investors, even as it continues moving through the regulatory process. The debate has direct implications for corporate finance teams, auditors, and the broader transparency of U.S. capital markets.

What the SEC Proposed

According to a summary published by accounting advisory firm Cohen & Co., the SEC issued a proposed rule on May 19, 2026, aimed at simplifying financial reporting requirements for many U.S. public companies. The proposal would potentially reduce the frequency of certain mandatory disclosures from quarterly to semiannual, a structural change that has not been made to core U.S. reporting requirements in decades.

The proposal follows an extended debate within U.S. policy circles, with proponents arguing that reduced reporting frequency could lower compliance costs and free up management time for longer-term strategic planning rather than quarter-to-quarter results management.

Why Investors Are Pushing Back

Comment letters submitted in response to the proposal have been extensive, and according to Cohen & Co.’s review of the public record, investors “appear to be largely opposed” to the shift, viewing frequent interim reporting as a core benefit of U.S. capital markets relative to other jurisdictions.

Accounting and law firms have taken a more measured position, generally urging any changes to remain aligned with the Financial Accounting Standards Board (FASB), whose existing disclosure requirements and guidance are built around a quarterly reporting cadence. A shift to semiannual reporting without corresponding changes to FASB guidance could create friction between SEC filing requirements and GAAP-based disclosure expectations.

Lessons From the U.K. Experience

The debate is not without precedent. The United Kingdom moved away from mandatory quarterly reporting for listed companies in 2014, returning to a semiannual disclosure requirement. According to Cohen & Co.’s analysis, that experience offers a cautionary data point: there was no measurable increase in capital expenditure or R&D investment following the change, while analyst coverage of affected companies declined as reliable interim information became less available — a particular risk for smaller and newly public companies that rely on analyst coverage to maintain investor visibility.

Practical Implications for Finance Teams

Beyond the debate over disclosure philosophy, the proposal carries practical complications. Many companies have debt covenants and credit agreements structured around quarterly financial delivery; a shift to semiannual reporting could require renegotiating those terms. Reduced reporting frequency would also extend the “window of market silence” between disclosures, a factor that governance and investor-relations teams would need to manage carefully to avoid information asymmetry.

Separately, and unrelated to the reporting-frequency debate, the SEC and FASB have continued finalizing more routine updates this year. New Accounting Standards Updates are taking effect for December 31, 2026, fiscal year-ends covering income tax disclosures, credit loss measurement, induced debt conversions, and stock compensation, according to Eide Bailly’s review of 2026 ASU activity. Additional guidance on paid-in-kind dividends and environmental credits is also on the near-term horizon.

What to Watch Next

The semiannual reporting proposal remains in the comment and review phase, and no final rule has been adopted as of this writing. Finance leaders should monitor the SEC’s regulatory agenda for further movement, while treating the current quarterly reporting requirement as the operative standard until any final rule is issued and an effective date is set.

Given the extent of investor opposition documented in the comment file, a full shift to mandatory semiannual reporting appears more likely to result in either a scaled-back compromise or continued study rather than swift adoption — though the SEC’s ultimate direction remains uncertain.

 

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AI-Driven Automation and Continuous Accounting Frameworks

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2 weeks ago

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August 15, 2026

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The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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2 weeks ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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