Dale, Hemel, & Manny, What are the Real Tax Risks for Harvard?

Harvey P. Dale (NYU School of Law), Daniel J. Hemel (NYU School of Law), and Jill S. Manny (NYU School of Law) have posted a new article, entitled “What are the Real Tax Risks for Harvard?” The article appears in Vol. 187 of Tax Notes Federal. Here is the abstract:

“When President Trump threatened to revoke Harvard University’s tax-exempt status in April 2025, some news outlets predicted that the financial consequences of losing that exemption would be dire. The New York Times reported that “Harvard’s tax benefits totaled at least $465 million in 2023,” a figure several other outlets repeated. The online magazine Slate further upped the ante on the tax exemption’s price tag. A Slate column concluded that “even assuming every penny of [the university’s] expenses is deductible, Harvard would still owe around $525 million in federal income taxes.” 

In all likelihood, the financial consequences of Harvard losing its federal tax exemption under section 501(c)(3) would be far less than the much-cited $465 million figure, and well below Slate’s $525 million estimate. Indeed, if Harvard were treated as a taxable C corporation rather than an exempt organization, its own federal corporate income tax liability could be as little as zero. Loss of federal tax exemption would, to be sure, mean that donors no longer could claim a charitable contribution deduction on their individual income tax returns for gifts made directly to the university. But after Bob Jones University lost its federal tax exemption in a landmark 1983 Supreme Court case, donors to that institution found they could continue to claim charitable contribution deductions by routing their gifts through affiliated tax-exempt organizations such as a scholarship fund, a university-run museum, and an elementary school. Harvard, with its labyrinthine network of connected organizations, would be even better positioned to channel contributions through tax-exempt affiliates than Bob Jones University was. 

This article begins by considering how Harvard’s own federal tax liability would change if it lost its exemption under section 501(c)(3). We then take stock of potential ramifications for Harvard’s ability to receive tax-deductible donations and to issue tax-exempt debt. We end by evaluating interactions between federal tax exemption and Harvard’s state and local tax liabilities.”