Less than two weeks after a conservative legal activist asked the Internal Revenue Service to strip the Gates Foundation of its tax-exempt status for offering scholarships based on race, the largest private foundation in the United States has decided to open its signature scholarship program to students of all races. The move makes the Gates Foundation the latest organization to change parts of its mission amidst the Trump administration’s aggressive push against diversity, equity, and inclusion programs.
On April 1, the American Alliance for Equal Rights sent a letter to the IRS requesting that it investigate Gates as well as the Creative Capital and Lagrant foundations for illegally discriminating against white students by supporting scholarship programs that were open to “African-American, American Indians/Alaska Native, Asian & Pacific Islander American, and/or Hispanic American” students, but not white students.
“The Foundation’s use of race as a preferential — indeed, determinative — factor for selection necessarily treated the race of white applicants as a negative,” the letter reads. “That is textbook discrimination, and it is unlawful and contrary to public policy.”
In deciding to end a race-based program, Gates follows dozens of corporations, including Bank of America, Goldman Sachs, and Target, and several big law firms that have taken steps to comply with a series of executive orders signed by President Donald Trump days after his January inauguration. The “Ending Radical and Wasteful Government DEI Programs and Preferencing” order, issued on Inauguration Day, terminated diversity, equity, and inclusion programs in the federal government and directed federal agencies to investigate private organizations, such as corporations, universities, and nonprofits, engaged in “illegal and immoral” DEI practices.
The Seattle philanthropy, which controls assets of $76.95 billion, joins other philanthropies, including the Chan Zuckerberg Initiative, which ended its half-billion dollar effort to attract science students of color, and the Howard Hughes Medical Institute, which ended a similar program.
The American Alliance for Equal Rights, a nonprofit led by Edward Blum, a conservative legal activist, submitted an IRS form 13909, a Tax-Exempt Organization Complaint (Referrral) form. The IRS is under no obligation to conduct investigations when referrals are made.
In response to inquiries about the complaint, a Gates spokesperson said changes to the scholarship program were being contemplated more than a half year ago, before the presidential election. The foundation released a statement following Blum’s IRS letter saying future scholarships would be open to students of all races.
“The Gates Foundation’s mission is to create a world where every person has the opportunity to live a healthy and productive life,” the statement reads.
It continues: “We take our compliance obligations seriously to ensure we can operate in service of this mission. In September 2024, we already began evaluating our Gates Scholarship program to ensure the program was reaching the broadest range of low-income students. It has been decided to expand eligibility to all Pell Grant-eligible students in order to achieve this goal. In the future, Gates Scholarship recipients will be selected through the expanded eligibility criteria.”
By using Pell Grants as one of the criteria for receiving one of the 300 or so Gates Scholarships awarded each year, the foundation could be using income as a loose proxy for race. More than half of Black and Native American students receive Pell Grants, while less than one-third of white students are awarded a grant, according to the Education Data Initiative, which collects educational statistics.
Two lawyers who filed the letter with Blum, Cameron Norris and James Hasson, did not respond to requests for comment.
Threats to Nonprofit Tax Status
The request sent to the IRS based its reasoning on the 1983 case Bob Jones v. the United States, in which the Supreme Court ruled the agency can strip a nonprofit, in this instance a religious college that barred interracial couples, of its tax status if it engages in activities that violate what the Supreme Court referred to as “fundamental public policy” accepted by all three branches of government — for example, an activity that violates a person’s civil rights.
The letter also references the 2023 Supreme Court decisions that race may not be used as a criterion for college admissions, lawsuits that were brought by Students for Fair Admissions, another Blum-led group, against Harvard University and University of North Carolina.
The letter argues that excluding white people from a benefit, so-called reverse discrimination, is counter to established public policy, one of the criteria that anchors the Supreme Court decision in Bob Jones, and is further supported in the 2023 admissions decisions.
The Gates Foundation simply has to end using race as a criterion if its donors want to retain their ability to deduct their charitable gifts, the letter argues. The chief donors to the Gates Foundation are Bill Gates and Warren Buffett.
“Bob Jones University eliminated its racially discriminatory policies to regain its tax-exempt status,’' the letter reads. “Surely the Gates Foundation can do the same — at least if it wants to maintain this valuable subsidy, courtesy of the federal government and the American taxpayer.”
The Gates Scholarship began in 2017, when the foundation committed $417 million over 10 years to helping undergraduate BIPOC students become campus leaders. It succeeded the $1.6 billion Gates Millennium Scholars program, which supported 19,000 Black, brown, and Indigenous students over nearly two decades and also was open to postgraduate students.
Legal and nonprofit experts say the strategy to try to get the IRS to revoke the status of a nonprofit is likely a prologue to legal action. By using the IRS complaint form, Blum was likely trying to broadcast that Gates was engaging in activity deemed illegal by the Trump executive orders.
Within hours of Gates sending out its statement, the Wall Street Journal ran an opinion penned by Blum outlining his argument.
“Publicity is the strategy, and the best response is to not give it oxygen,” said Kathleen Enright, president of the Council on Foundations, a membership group of philanthropic leaders. Enright commented after the letter was sent to the IRS but before Gates announced it was opening up the scholarship to students regardless of race.
Working to eliminate prejudice and discrimination is regarded by the IRS as a charitable activity that qualifies an organization for tax-exempt status, notes nonprofit tax expert Ellen Aprill, senior scholar in residence at the UCLA School of Law.
Until the 2023 college admissions cases, and the Trump DEI orders, many argued that actions were only racially discriminatory if they injured a person or group of people who identify as a racial minority.
A court could very well find a scholarship that is closed to white students illegal discrimination, Aprill said. But the test for regulatory action by the IRS spelled out in the Bob Jones case is whether the program goes against fundamental public policy.
The novelty of the Trump executive orders, she said, make it difficult to argue that they are “fundamental public policy” — in other words, a core government policy accepted by all three branches of the government.
Aprill questioned whether an IRS investigation, if it happened, would find the Gates Scholarship worthy of revoking the foundation’s tax exemption because it is a small part of the philanthropy’s overall work. Although the foundation has put billions of dollars into the both the Millennium and Gates Scholars programs, their sum is paltry when compared with the nearly $8 billion in charitable expenses, including grants, it makes each year.
The Creative Capital and Lagrant foundations did not respond to interview requests regarding the American Alliance for Equal Rights letter recommending the IRS investigate their alleged discrimination against white students.
The IRS has maintained that charities may not engage in, as their purpose, an activity that is illegal. So, for instance, a nonprofit that is formed for the purpose of committing civil disobedience and breaking the law might not receive tax-exempt status.
But an organization that in the process of trying to achieve in its broader mission supports an activity that breaks the law — say, by giving a grant to a nonprofit whose members are guilty of an isolated incident of trespassing — might not be in jeopardy of losing its status as long as that activity is not a substantial part of the programs it supports. But it is not clear how to define what is substantial, Aprill said.
“Substantiality is a really wiggly concept,” she said.
Jeff Tenenbaum, a lawyer who represents nonprofits, agreed and called the argument Blum made in his letter to the IRS “a stretch.”
“Cases and rulings are all over the place” on substantiality, he said before the Gates foundation adjusted the criteria for the scholarship. “It has to be something that is significant. It can’t just be some tiny little part of what an organization does.”
Following up by email after the Gates change, Tenenbaum said the move likely helped the philanthropy giant avoid a high profile discrimination lawsuit.
“The Gates Foundation did what it needed to do,” he wrote.
