The recent action from the Trump administration to strip Harvard’s tax exemption is an extraordinary decision that is likely to face legal hurdles, yet it could have disastrous effects on the university if implemented.
The Treasury Department disclosed on Wednesday that President Trump initially suggested this action in a social media post, and it was subsequently covered by the Washington Post.
This action reflects the Trump administration’s ongoing attacks against the nation’s oldest colleges following the dismissal of several policy requests made by the White House, and prompting questions over federal funding.
“This will devastate Harvard University. Honestly, it’s difficult to envision how Harvard would function with its current structure,” remarked Katherine Meyer, a Fellow at the Brown Center for Educational Policy at the Brookings Institute.
Trump’s threat to revoke Harvard’s tax exemption came after the university declined to align with Ivy League institutions regarding the administration’s assertions that they should revise their employment and admissions policies, abolish diversity, equity, and inclusion (DEI) initiatives, and modify leadership structures.
In addition, the Trump administration swiftly retracted $2 billion in federal funding, and Homeland Security Secretary Christie Noem warned about the potential cessation of foreign student visa allocations.
“Perhaps Harvard should be taxed as a political organization if it loses its non-profit status and continues to project a political stance,” Trump stated in a Truth Social post on Tuesday. “Bear in mind that tax-exempt status is fully based on public interest actions!”
A representative for Harvard University stated to The Hill that “there is no legal justification for withdrawing Harvard’s tax-exempt status.”
“Actions of this nature jeopardize our educational missions. It would diminish student financial aid, halt essential medical research programs, and eliminate opportunities for innovation. The improper application of this measure would have far-reaching implications for the future of higher education in the U.S.”
The IRS’s classification for tax exemption is challenging to revoke, and it should avoid political implications.
“If [Trump] or someone in the White House made that request, it would be unlawful and violate the Internal Revenue Code’s provisions that impose criminal sanctions,” explained Ellen April, a resident scholar at the Lowell Milken Institute for Business Law and Policy.
However, if the necessary steps are taken, “there are many procedures involved…and I anticipate it to be protracted,” Aprill remarked.
The IRS’s inquiry into a potential Harvard breach of its 501(c)(3) status can take months, and organizations generally have the chance to remedy any identified violations.
If the IRS pushes ahead with the revocation, Harvard has the right to contest it in court.
Historically, only one institution of higher learning has lost its tax-exempt status, which was Bob Jones University in the 1980s when it was ruled that it denied students the ability to have interracial marriages.
“A conclusion that an organization is not charitable should only be made if it’s unquestionably clear that its activities are contrary to fundamental public policies. Trump’s assertion that Harvard’s behavior embodies this illegality does not have longstanding support,” said another expert.
Trump has cut off millions in federal funding to various universities for alleged inaction related to anti-Semitism or for policy violations involving transgender athletes.
Typically, civil rights investigations unfold over an extended timeframe, allowing schools to address pertinent issues, but the Trump administration has acted swiftly in terminating funds.
“There is a lengthy process, and the administration appears to be attempting to disregard all of that,” noted Stephen Bloom, vice president for government relations at the U.S. Council of Education.
“This could have a chilling effect not just on higher education, but on the sector more broadly,” Bloom cautioned, indicating that other non-profit organizations focused on climate change, sustainability, diversity, and inclusion may find themselves similarly targeted by the Trump administration.
“Numerous non-tertiary, tax-exempt organizations are engaged in efforts that would not raise concerns under normal circumstances. Even if their views differ, few would challenge their tax exempt status. However, in this environment, there are growing concerns about all of this,” he elaborated.
Bloomberg projected that in 2024, Harvard would face $465 million in taxes.
Efforts to recoup those losses through donations may encounter serious obstacles, as tax benefits for gifts would no longer apply.
Although Harvard is the wealthiest university globally, boasting a $53 billion endowment, a significant portion of these funds are legally designated for specific uses and cannot be easily redirected. Moreover, the part of the fund that generates revenue would also be subject to taxation.
“It will affect every segment of the institution immediately,” commented Will Del Pilar, senior vice president at Edtrust, underscoring that Harvard may qualify for federal financial aid initiatives.
In March, Harvard disclosed that families with income below $200,000 would be exempt from tuition fees.
“Losing tax-exempt status will influence their ability to maintain campus facilities, which will impede their capacity to provide financial assistance. It will interfere with their recruitment of faculty members and their research funding,” Del Pilar stated. “They’ll have to shift towards a for-profit model of operation,” he continued. “Should they develop intellectual property, there will be pressure to commercialize it, particularly since much is financed via public research funds; they must pursue monetization in ways they currently do not. This shift will be especially relevant in areas like healthcare advancements, technological innovation, and societal benefits arising from their research.”
