The Donald Trump administration in the United States has requested that the Internal Revenue Service (IRS) revoke Harvard University's tax-exempt status, for alleged failure to address antisemitism on campus.
Trump initially suggested this in a Truth Social post on Tuesday saying Harvard should lose its status and be taxed as a "Political entity if it continues promoting political, ideological, and terrorist-inspired sickness."
Earlier on Monday, the US government said it would freeze $2.2 billion in grants and $60 million in contracts for Harvard after the university refused to comply with its policy demands concerning changes in its policies.
What is tax-exempt status?
Losing its tax-exempt status would deal another financial hit to the nation’s wealthiest university, which is already facing a multibillion-dollar freeze in federal funding.
Tax-exempt status allows organisations to avoid paying federal income tax if they serve purposes recognised by the IRS. Under the 501(c)(3) category, this includes charitable, religious, educational, scientific, and similar activities, according Washington Post.
The IRS lists “advancement of education or science” as a charitable cause. Like many universities, Harvard holds tax-exempt status as an educational institution. It also doesn’t pay state income tax in Massachusetts for the same reason.
Can Trump revoke Harvard's tax-exempt status?
Trump argued that “Tax-exempt status is totally contingent on acting in the public interest!”
However, only the IRS, under the US Treasury Department, has the power to investigate or revoke a tax exemption. Federal law bars senior executive branch officials — including the president and vice president — from asking the IRS to start or stop an audit or investigation of any taxpayer. Violating this law can lead to a fine of up to $5,000 and a prison sentence of up to five years. “Prohibition on executive branch influence over taxpayer audits and other investigations” is the section that details this, according to CNN.
Institutions can lose their tax-exempt status only in specific situations. For instance, 501(c)(3) organisations are barred from taking part in political campaigns for public office.
To keep the IRS politically independent, the IRS has only two politically appointed officials. It is already facing turmoil under the new Trump administration, with several acting commissioners resigning, reportedly due to a standoff over whether tax data could be shared with immigration officials.
The IRS was involved in a major scandal during the Obama administration, too, after a Treasury Department investigation revealed that the agency had delayed granting tax-exempt status to conservative groups.
How Harvard will be impacted if it loses its status
If the IRS determined that Harvard’s tax-exempt status should be revoked, the university would be notified and given a chance to challenge the decision.
For Harvard and many other universities, tax-exempt status means one less major cost in their annual budgets, said Ted Mitchell, who served as undersecretary of education under president Barack Obama, wrote Washington Post. If that status is revoked, Harvard could end up owing the government millions—or even billions each year.
When IRS last revoked a university's tax-exempt status
Although there are instances of colleges losing or failing to gain tax-exempt status, this has never happened following a president’s direct request.
According to CNN, Bob Jones University lost its exemption in the 1970s after it refused to admit students in interracial marriages, despite enrolling unmarried Black students. The IRS argued that institutions practising racial discrimination could not qualify for tax-exempt status.
The case reached the US supreme court, which upheld the IRS’s decision in 1983. Bob Jones University later changed its policies and regained its tax-exempt status in 2017.
Trump initially suggested this in a Truth Social post on Tuesday saying Harvard should lose its status and be taxed as a "Political entity if it continues promoting political, ideological, and terrorist-inspired sickness."
Earlier on Monday, the US government said it would freeze $2.2 billion in grants and $60 million in contracts for Harvard after the university refused to comply with its policy demands concerning changes in its policies.
What is tax-exempt status?
Losing its tax-exempt status would deal another financial hit to the nation’s wealthiest university, which is already facing a multibillion-dollar freeze in federal funding.
Tax-exempt status allows organisations to avoid paying federal income tax if they serve purposes recognised by the IRS. Under the 501(c)(3) category, this includes charitable, religious, educational, scientific, and similar activities, according Washington Post.
The IRS lists “advancement of education or science” as a charitable cause. Like many universities, Harvard holds tax-exempt status as an educational institution. It also doesn’t pay state income tax in Massachusetts for the same reason.
Can Trump revoke Harvard's tax-exempt status?
Trump argued that “Tax-exempt status is totally contingent on acting in the public interest!”
However, only the IRS, under the US Treasury Department, has the power to investigate or revoke a tax exemption. Federal law bars senior executive branch officials — including the president and vice president — from asking the IRS to start or stop an audit or investigation of any taxpayer. Violating this law can lead to a fine of up to $5,000 and a prison sentence of up to five years. “Prohibition on executive branch influence over taxpayer audits and other investigations” is the section that details this, according to CNN.
Institutions can lose their tax-exempt status only in specific situations. For instance, 501(c)(3) organisations are barred from taking part in political campaigns for public office.
To keep the IRS politically independent, the IRS has only two politically appointed officials. It is already facing turmoil under the new Trump administration, with several acting commissioners resigning, reportedly due to a standoff over whether tax data could be shared with immigration officials.
The IRS was involved in a major scandal during the Obama administration, too, after a Treasury Department investigation revealed that the agency had delayed granting tax-exempt status to conservative groups.
How Harvard will be impacted if it loses its status
If the IRS determined that Harvard’s tax-exempt status should be revoked, the university would be notified and given a chance to challenge the decision.
For Harvard and many other universities, tax-exempt status means one less major cost in their annual budgets, said Ted Mitchell, who served as undersecretary of education under president Barack Obama, wrote Washington Post. If that status is revoked, Harvard could end up owing the government millions—or even billions each year.
When IRS last revoked a university's tax-exempt status
Although there are instances of colleges losing or failing to gain tax-exempt status, this has never happened following a president’s direct request.
According to CNN, Bob Jones University lost its exemption in the 1970s after it refused to admit students in interracial marriages, despite enrolling unmarried Black students. The IRS argued that institutions practising racial discrimination could not qualify for tax-exempt status.
The case reached the US supreme court, which upheld the IRS’s decision in 1983. Bob Jones University later changed its policies and regained its tax-exempt status in 2017.
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