Harvard, like many American colleges and charities, enjoys a federal tax exemption, a status granted by the Internal Revenue Service that allows the wealthy Ivy League university to forgo paying perhaps hundreds of millions of dollars a year in taxes.
The I.R.S. is now weighing whether to revoke Harvard’s tax exemption, according to three people familiar with the matter, as the Trump administration demands that the university make changes to its hiring, admissions and curriculum policies.
President Trump has called publicly for Harvard to pay taxes, and his administration cut $2.2 billion in federal funding to the university after it refused to submit to the administration’s pressure campaign. He raised the issue again on Friday, posting on his social media site: “We are going to be taking away Harvard’s Tax Exempt Status. It’s what they deserve!” He did not offer details.
Here’s what to know about tax-exempt status:
What is tax-exempt status?
Tax-exempt status allows an organization not to pay 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. Under the Internal Revenue Code, none of the organization’s earnings can go to a private shareholder or individual; the organization is limited in its ability to influence legislation and it cannot participate in a campaign or support political candidates.
Why do Harvard and other universities claim it?
Simply put, tax-exempt status saves money and can boost credibility. It can also help attract wealthy individuals seeking to donate large sums.
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 says.
Can the I.R.S. revoke tax-exempt status?
The I.R.S. determines which organizations meet the criteria for tax-exempt status. The agency has at times revoked tax-exempt status, including after audits that found political or commercial activities that violated the terms of eligibility.
In the past, the I.R.S. has challenged the tax exemptions of educational and other institutions under both Republican and Democratic administrations, according to Gowri Krishna, a professor at Fordham University School of Law who specializes in nonprofit law.
In one well-known example, Bob Jones University in South Carolina, a fundamentalist Christian institution that had banned interracial dating, lost its tax-exempt status over its discriminatory policies in a case that the Supreme Court ruled on in 1983. The university had claimed that the I.R.S. had violated its religious liberty. The university lifted the ban in 2000, and said in 2017 that it had regained its tax-exempt status.
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. began scrutinizing Harvard before the president’s public call for Harvard to pay taxes.
In a statement issued in April, 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 and legal experts expect would be successful.
“Harvard would argue there’s a violation of its free speech and academic freedom,” Ms. Krishna said. “I think it would be highly, highly unlikely that the government would win.”
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 donors receive from making contributions. In the 2024 fiscal year, Harvard reported that it had collected more than $525 million in donations that could be used immediately.
Rescinding Harvard’s tax exemption would also have “grave consequences” for higher education in general, the university said.
And an attempt to change Harvard’s tax-exempt status amid its dispute with the Trump administration would amount to a severe breach of the independence of the I.R.S., which was established to be insulated 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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