Harvard on Friday signalled to resist President Trump's new threat to revoke the school's tax-free status.
Harvard has stopped making an explicit pledge to legal challenges to revoke tax status, changes that govern the university's finances. However, a university spokesman said in a statement that “there is no legal basis for rescinding Harvard's tax-free status.”
“Unprecedented actions like this will put our ability to carry out education missions at stake,” the statement said. “It will be a loss of financial aid for students, abandonment of important medical research programs, and a loss of opportunities for innovation. The illegal use of this instrument will have more broadly, illegal, and significant consequences for the future of higher education in America.”
Trump declared on social media on Friday morning that the government would “take Harvard's tax-free status.” “It's worthy of them,” Trump added.
Despite Trump's online and Harvard's sharp response, it was not immediately clear whether the IRS was actually moving forward by revoking Harvard's tax-free status. Federal law prohibits the president from directing the IRS to conduct tax investigations, and IRS employees who receive such an order must report it to internal government watchdogs.
After Trump first publicly called on Harvard to lose tax exemptions last month, White House officials said they would make their own conclusions on whether the IRS would do so.
Representatives from the IRS and the Treasury, which oversees tax collectors, did not respond to requests for comment.
Not only does it require Harvard to pay most taxes, but it also allows donors to amortize gifts to the school on their tax returns. Losing status could cause Harvard to not only let the federal government start paying taxes with that revenue, but could drain the donation. Charitable activities account for approximately 45% of Harvard's annual operating revenue. Most of that total comes from payments from the university's $53 billion donations.
The fierce standoff between the Trump administration and Harvard University was part of a widespread pressure campaign against some of the country's most elite universities, portraying the administration as a hotbed of anti-Semitism and discrimination that requires federal intervention.
Over the past few weeks, Harvard has been clearly in conflict with the Trump administration. The university rejected a list of government requests. This included submitting a report in Washington, changing admission and employment policies, and introducing outsiders to investigate “programs and sectors that reflect most anti-Semitic harassment and ideological capture.”
The university sued Harvard's rebellion after the administration froze more than $2 billion in federal funds.
Even before Trump first called for Harvard to lose tax exemptions, the Trump administration has been calling for the typical technocratic IRS to be transformed into a political tool.
Trump officials have pressured the IRS to help immigrants and customs enforcement find people seeking deportation. This is a decision that agency officials warned that it would undermine legal protections of taxpayer information. (IRS officials may face prison time if they inappropriately share taxpayer information, including details about whether an individual or organization is facing an audit.)
The agency has five different leaders so far this year, and current proxy committee member Michael Folkender took over after Treasury Secretary Scott Bescent complained to Trump that Elon Musk had set up a former proxy leader on his back. Faulkender is also Deputy Secretary of the Treasury.
Republicans have long accused the IRS of inappropriate scrutiny of conservatives, leading a series of investigations under the Obama administration to treat Tea Party Group's institutions. Inspectors later concluded that the agency had improperly targeted both conservative and liberal organizations.
“I think Republicans should be very cautious about using the IRS against certain sectors or groups of small organizations,” said Scott Hodge, former president of the Tax Foundation, a think tank that supports low taxes. “It's wrong to weaponize the IRS in any way. Policies must always be uniform and neutral and based on tax principles.”
A group of Democrats, led by minority leader Chuck Schumer, of New York, wrote to the IRS Watchdog, a financial inspector, for tax management, demanding that Trump be investigated for Harvard's targeting. They wrote, “It is illegal and unconstitutional for the IRS to take direction from the president.”
Typically, the IRS challenges the tax-free status of the group after conducting a long audit, determining, for example, whether the entity is engaged in too many political or commercial activities. If the IRS decides to revoke the exemption from the tax exemption, the group may appeal the decision in court. Given Harvard's vast research and educational activities, tax experts hope that the court will ultimately be adjacent to the school.
“We went there, we did that,” said Ted Mitchell, president of the American Council of Education and Secretary of Education during the Obama administration. “The president has been saying this for weeks. Nothing has changed to allow him to take unilateral action on the agency's nonprofit position.”
Even if the IRS ultimately doesn't change Harvard's tax status, Republicans are preparing to significantly raise taxes on 2017 university contributions.
