The Internal Revenue Service is weighing whether to revoke Harvard’s tax exemption, according to three people familiar with the matter, as the Trump administration and Harvard remain locked in a dispute over demands that the university make changes to its hiring, admissions and curriculum policies.
President Trump has called publicly for the Ivy League university to pay taxes, and the administration cut $2.2 billion in federal funding after Harvard refused to submit to the administration’s pressure campaign.
Here’s a look at the tax-exempt status afforded to Harvard — as well as most universities, charities and churches — and why it matters:
What is tax-exempt status?
Tax-exempt status allows an organization to forgo paying federal income and property taxes under Section 501(c)(3) of the Internal Revenue Code, which means that donations to the institution are tax-deductible. Eligible organizations include those whose purpose is “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition and preventing cruelty to children or animals,” according to the I.R.S.
The I.R.S. places a number of restrictions on any organization claiming tax-exempt status. None of its earnings can go to a private shareholder or individual, and the body “may not be an action organization.” This means that it cannot try to influence legislation, participate in a campaign or support a political candidate, according to the Internal Revenue Code.
Why do Harvard and other universities claim it?
Simply put, tax-exempt status saves money and can boost credibility. It can also help an educational institution become a magnet for wealthy individuals seeking to donate large sums. In Harvard’s case, the loss of tax-exempt status could cost the university billions of dollars.
Institutions must apply to the I.R.S. for tax exemption, and a vast majority of universities do so, according to the Association of American Universities. This is because of their educational purpose, which “the federal government has long recognized as fundamental to fostering the productive and civic capacities of citizens,” the association’s website says.
Can the I.R.S. revoke tax-exempt status?
The I.R.S. has the authority to determine which organizations meet the criteria for tax-exempt status and which do not, according to the agency. The I.R.S. has at times revoked the tax-exempt status of organizations, for example as a result of audits that found political or commercial activities that violated the terms of eligibility.
But it is rare for the I.R.S. to revoke the tax-exempt status of an educational institution. Tax laws also provide organizations the right to appeal an adverse decision by the agency.
The agency says that it receives complaints claiming abuse of tax-exempt status every year from the public, members of Congress, state and federal government agencies and internal sources. But federal law bars the president or other senior officials of the executive branch from directly or indirectly requesting that the I.R.S. investigate or audit specific organizations.
Harrison Fields, a White House spokesman, said that the I.R.S.’s scrutiny of Harvard began before the president’s public call for Harvard to pay taxes.
In a statement, Harvard said that there was no legal basis for rescinding its tax status. Any attempt to take away Harvard’s tax exemption would be likely to face a legal challenge, which tax experts expect would be successful.
What would happen if Harvard lost its tax-exempt status?
Harvard has said that losing its tax exemption would result in the reduction of financial aid for students, the abandonment of important medical research and the loss of other opportunities for innovation.
Bloomberg News estimated in an analysis that Harvard’s tax benefits totaled at least $465 million in 2023. The university also indirectly benefits from the tax deduction that its supporters get from donating money to the school: about 27.2 cents per dollar of any donation, according to an estimate cited by the analysis. Harvard reported that in the 2024 fiscal year, it received more than $525 million in donations that could be used immediately.
Beyond the institution itself, rescinding Harvard’s tax exemption would also have “grave consequences” for the higher education sector in general, the university said.
More broadly, even an attempt to change Harvard’s tax-exempt status would amount to a drastic breach of the independence of the I.R.S. and its historical insulation from political pressure.
Matthew Mpoke Bigg is a London-based reporter on the Live team at The Times, which covers breaking and developing news.
John Yoon is a Times reporter based in Seoul who covers breaking and trending news.
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