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Can Trump strip Harvard of its tax-exempt status? [1]
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Date: 2025-04-15
Such a move could have significant implications for Harvard. And while the federal designation doesn’t have a direct effect on the property taxes Harvard avoids on its voluminous local properties, it raises new questions about how state and local officials might react to Trump’s efforts.
The president had previously mused that Harvard could potentially lose the tax exemption enjoyed by most universities and other charities “if it keeps pushing political, ideological, and terrorist inspired/supporting ‘Sickness?’”
President Trump has settled on a new target in his administration’s deepening dispute with Harvard . After freezing billions in federal funds for the university early, he now says he will revoke Harvard’s tax-exempt status .
Here are some answers to the basic questions about what the tax dispute might mean.
What does Trump mean by Harvard’s “tax-exempt status?”
He may be focused on Harvard’s status as a tax-exempt entity under the federal Internal Revenue Code. Harvard is among the vast majority of public and private universities and colleges that are tax-exempt.
How important is that distinction to Harvard?
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Extremely important. It means the charitable contributions it receives and its investment income on its $50 billion-plus endowment are not subject to federal income tax. It also means other income it receives is exempt.
What are the state and local tax implications for Harvard, if its tax-exempt status is changed?
The implications are huge, probably involving hundreds of millions of dollars. Like the federal government, Massachusetts and its cities and towns impose taxes on corporate entities.
For the state, those include sales taxes (6.25 percent) and income taxes (8 percent, generally, for corporations), while municipalities collect property taxes (at rates set annually by locally-elected boards).
Does Massachusetts grant tax exemptions for the likes of Harvard?
Yes, like the federal government, Massachusetts exempts nonprofit educational institutions from its income tax. And while the federal government does not tax real estate, cities and towns in Massachusetts do.
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Harvard’s exempt status, however, allows it to avoid paying taxes on its sizable swaths of real estate in Cambridge and in Boston neighborhoods including Allston and Longwood. Like other colleges and universities in Massachusetts, Harvard makes voluntary “payment in lieu of taxes” to Cambridge and Boston. Those amounts, however, are a fraction of what a non-exempt taxpayer would pay.
Does Harvard’s status as a federally-exempt institution automatically mean it is tax exempt on the state and local levels?
No, Massachusetts requires organizations seeking tax-exempt status to separately file an application with the state, which decides independently whether to grant that status.
Nonprofits must demonstrate they are organized and operated exclusively for a religious, educational, or other charitable purpose. Still, there’s little doubt a federal tax-exempt designation carries significant weight with the state.
What does the relevant section of the Internal Revenue Code say about educational institutions?
Section 501(c)(3) is not exclusive to educational institutions. Organizations that are organized and operated exclusively for the following purposes may qualify for tax exemption: educational, religious, charitable, scientific, or literary.
How does the IRS test whether an organization is properly tax-exempt?
Broadly speaking, such organizations must operate exclusively for educational or other exempt purposes.
The IRS says on its website that charitable causes include “relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.”
What kind of activities may run afoul of tax-exempt status?
The IRS is wary of any substantial private benefit flowing to any member of an organization, excessive expenditures on lobbying, and political campaign activity. Exempt organizations and their representatives acting in an official capacity may not campaign for or against candidates for elected office.
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Who determines whether an organization is operating properly within the 501(c)(3)?
The IRS grants 501(c)(3) status and monitors compliance with regulations.
Can Trump order the IRS to investigate Harvard?
Under the law, the IRS initiates investigations based on established criteria and procedures, not based on presidential directives. The IRS is expected to operate independently and without political pressure.
What does Trump mean when he says Harvard could be taxed as a “political entity”?
The IRS defines a political organization as a party, committee, association, fund, or other organization organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function.
Is a political organization’s income taxable?
Some income is taxable and some isn’t. Not taxable are contributions of money or other property; membership dues and fees from a member of the political organization; and proceeds from political fund-raising or entertainment events or from the sale of political campaign materials.
What kind of income is taxable for a political organization?
Investment income, or income from a trade or business, such as renting excess office space to an unrelated organization.
Got a problem? Send your consumer issue to
[email protected]. Follow him @spmurphyboston.
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