Trump Threatens Harvard's Tax-Exempt Status, University Fights Back

President Donald Trump has announced that Harvard University will lose its tax-exempt status, escalating his attacks on the Ivy League institution and threatening to strip it of various economic benefits. This announcement comes after weeks of threats to change Harvard's tax-exempt status.

In a post early Friday morning, Trump wrote, "We will revoke Harvard University's tax-exempt status. They deserve it!" This move is part of a broader conservative critique of elite universities, which have been accused of ideological bias and promoting anti-Semitism on campus. Trump and other Republicans have criticized these institutions for pushing a liberal agenda and what they term "wokeness."

During a commencement speech at the University of Alabama on Thursday evening, Trump stated, "The next chapter of the American story will not be written by the Harvard Crimson. It will be written by you, the students of the University of Alabama."

Harvard University has responded by asserting that the move to revoke its tax-exempt status lacks legal basis. A spokesperson for the university stated, "For generations, the government has granted tax-exempt status to universities to support their educational missions. Revoking Harvard's tax-exempt status is not legally justified." The university warned that such an action would reduce financial aid for students and force the abandonment of key medical research projects, with broader implications for the future of higher education in the United States.

Approximately 1,700 private universities operate as non-profit organizations and enjoy tax-exempt status under a section of the U.S. tax code that specifies education as a qualifying purpose for tax exemption. The Internal Revenue Service (IRS) standards prohibit the president from interfering with federal tax agency decisions, although the IRS commissioner reports to the Secretary of the Treasury. As of Friday morning, it was unclear whether Trump's announcement was based on his own decision or that of the agency.

Revoking Harvard's tax-exempt status would deal a significant financial blow to the university. The tax-exempt status allows Harvard to avoid paying traditional property taxes on educational buildings and to issue bonds with tax-exempt interest, attracting investors and lowering borrowing costs. The university's tax benefits were estimated to total at least $465 million in 2023.

Tensions between Trump and Harvard University have escalated since the university refused to comply with government demands to reform its campus policies. Harvard viewed these demands as exceeding the scope of efforts to combat anti-Semitism and threatening the school's independence. In response, the government froze tens of billions of dollars in funding for projects, including research on ALS and tuberculosis. Harvard has since sued several U.S. agencies and high-ranking officials.

Democrats, including Senator Elizabeth Warren, have come to Harvard's defense. Warren, a Massachusetts senator, stated in an interview last month that it is "completely illegal" for the U.S. president to direct the IRS to investigate or change the tax status of a taxpayer. James Repepi, a law professor at Boston College, noted that the process could take years, involving an IRS review, potential appeals within the agency, and possible legal action in the courts.

Repepi explained that if the IRS decides to revoke Harvard's tax benefits, the university could appeal within the agency. If the case proceeds to court, Harvard could seek a judicial decision to maintain its tax-exempt status. "This case could take years to resolve in the courts," Repepi said.

In the past, the IRS has revoked the tax-exempt status of a university, a process that took several years. Bob Jones University in South Carolina lost its federal tax exemption in 1976 due to its policy banning interracial dating. The Supreme Court upheld this decision in 1983. Bob Jones University lifted the ban in 2000 and regained its tax benefits in 2017.

As one of the wealthiest universities in the United States, Harvard has substantial resources to withstand unexpected shocks. It holds an extremely high credit rating and a $53 billion endowment. In the 2024 fiscal year, the university reported $6.5 billion in revenue and a $45 million surplus. Harvard's financial resources, accumulated through years of prudent planning and sound financial management, are designed to help its various schools and departments weather financial storms.

Harvard recently took steps to raise additional funds by selling $7.5 billion in taxable bonds. Officials from the endowment had previously discussed selling approximately $10 billion in private equity fund shares. Earlier this week, Harvard released highly anticipated reports on anti-Semitism and anti-Muslim bias, detailing how students interacted following the Hamas attack on Israel in October 2023.

In a letter accompanying the reports, Harvard President Alan Garber expressed regret for moments when the university failed to meet its high standards for the school community. Garber acknowledged the need to address anti-Semitism, noting his personal experience with the issue during his tenure, and reiterated Harvard's commitment to working with the government. In recent weeks, Harvard placed the Harvard College Palestine Solidarity Committee on probation, forced the resignation of the head of the Middle East Studies Center, and suspended cooperation with Birzeit University in the West Bank. The university also renamed its Office for Diversity, Equity, and Inclusion to the Office for Community and Campus Life.