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The university, like many colleges and charities, is exempt from federal income and property taxes, saving it billions of dollars. President Donald Trump has questioned whether it should enjoy that status.
Harvard University, like many American colleges and charities, enjoys a federal tax exemption, a status granted by the IRS that allows the wealthy Ivy League university to forgo paying perhaps hundreds of millions of dollars a year in taxes.
The IRS 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 Donald Trump has called publicly for Harvard to pay taxes, and the administration cut $2.2 billion in federal funding to the university after it refused to submit to the administration’s pressure campaign.
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 IRS.
The IRS places a number of restrictions on any organization claiming tax-exempt status. None of its earnings can go to a private shareholder or individual, it is limited in its ability to influence legislation, and it cannot participate in a campaign or support political candidates, 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 attract wealthy individuals seeking to donate large sums.
Institutions must apply to the IRS 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 IRS revoke tax-exempt status?
The IRS determines which organizations meet the criteria for tax-exempt status. The agency has at times revoked tax-exempt status, for example after audits that found political or commercial activities that violated the terms of eligibility.
But it is rare for the IRS 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 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 IRS investigate or audit specific organizations.
Harrison Fields, a White House spokesperson, said the IRS’ scrutiny of Harvard began before the president’s public call for Harvard to pay taxes.
In a statement, Harvard said 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 donors get 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 IRS, which was established to be insulated from political pressure.
This article originally appeared in The New York Times.