Can the President End Harvard’s Tax Exempt Status?
No.
Earlier this week, Harvard refused to comply with a (truly breathtaking) set of demands from the federal government. The federal government’s retaliation was swift and severe. It immediately suspended (or, at least, purported to suspend) over $2 billion in funding for Harvard. Meanwhile, the President mused on social media:
Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting “Sickness?” Remember, Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST!
No, he cannot do that. As co-blogger Prof. Brunson notes on Bluesky: “100% no. … [T]here is literally no legal argument that Harvard doesn’t meet the requirements of 501(c)(3).”
In fact, there are a surprising number of layers of confusion embedded in such a short statement. Here are a few high-level reminders:
1) Schools, and specifically universities, have been recognized as charitable causes since at least the Statute of Charitable Uses of 1601, which deems “[t]he maintenance of schools of learning, free schools, and scholars in universities” as a charitable cause. The tax code expressly exempts nonprofits formed for “educational purposes” under 501(c)(3), and always has. Indeed, the educational exemption is so well established that some states (which have their own taxation and exemption rules) grant exempt status even to for-profit schools.
2) Many people have a gut reaction that nonprofit = poor, and therefore question whether very large, wealthy, sophisticated entities that engage in expensive, market-rate transactions (hospitals, universities) should be tax-exempt. In fact, there are any number of scholarly and popular articles debating this question, and have been for decades… such as the quite on point article by Prof. Colombo: Why Is Harvard tax-exempt? (And other mysteries of tax exemption for private educational institutions).
3) The idea that tax-exempt status requires “acting in the public interest” is true at a high enough level of generality, but does not suggest the federal government has a license to decide whether any particular nonprofit furthers the “public interest” in some general sense. Rather, the federal government’s discretion is limited based on the constitution and on the specifics of tax law. Tax law carefully defines when, in Congress’s judgment, the public interest provides for tax-exempt status. The Executive Branch has no unrestrained discretion to deny based on abstract notions of “public interest.” (Any such delegation of power to the Executive Branch would raise serious major questions doctrine/nondelegation issues).
4) There is also a public interest requirement that the nonprofit be organized and operated to benefit not just a few insiders, but a wider swath of the public. I can’t see how Harvard doesn’t meet that test.
5) The ban on “political” activity is narrower than many people think. All 501(c)(3) exempt organizations are prohibited from engaging in political activity–supporting or opposing a candidate for elected office–which is not the same as “ideological” or policy-related activity. And even exempt organizations can form affiliates to conduct otherwise restricted political activity under a common brand (although consult your friendly neighborhood tax lawyer before attempting such a thing).
7) There is a narrow “public policy” exception that allows the federal government to deny exemption to organizations (including universities) that engage in racial discrimination (the Bob Jones case). It has not been extended to discrimination against other protected cases, although many have argued that it should be. Even if it were to be extended beyond race discrimination, there would be a far more substantial showing needed to show that Harvard has a policy of discrimination.
8) The First Amendment would likely prohibit the federal government from selectively withholding or granting exempt status based on agreement with a university’s speech, curriculum, or abstract ideology. (For more, see Prof. Mayer’s article.) Indeed, in Big Mama Rag, the DC Circuit struck down an IRS regulation that required educational nonprofits to provide “full and fair exposition” of a viewpoint, finding that such a requirement is vague and leads to undue discretion. Indeed, Big Mama Rag amply illustrated the problem — the IRS revoked a feminist and queer newsletter’s exempt status because the IRS didn’t like some of the positions articulated in the newsletter. The First Amendment is even more protective of universities, and First Amendment law has become even more protective over the past decades. (For many elite universities that were founded with explicit religious purposes, there may be additional First Amendment or RFRA religious freedom defenses to these attacks.)
Harvard’s tax-exemption may be in the news today, but it’s not going anywhere anytime soon.
-Joseph Mead