The administration’s first letter warned that the $9 billion grant and contract would be reviewed. After the front and back of the two sides, the federal agency announced on April 14 that the university was frozen due to inaction over an ultimatum.
“Remember that tax-free status is entirely conditional on public interest actions!”
In response to reports that the Internal Revenue Service (IRS) is considering withdrawing Harvard’s tax-free status, White House Deputy Press Office Harrison Fields told the Epoch Times that “an investigation into tax status violations was launched before Trump’s social media post.”
He added that the IRS probe will be carried out independently of the president.
The Epoch Times reached for the IRS for comments.
What is tax-free status?
The Income Act of 1909 allowed nonprofits “concentrating solely for religious, charity or educational purposes” to be exempt from taxation.
The IRS is responsible for granting a 501(c)(3) status that exempts education, religion, charity, civic and labor organizations from federal income and local property taxes, according to federal agencies.
Tax-free status also allows people to make tax-deductible contributions to these organizations.
The majority of higher education institutions across the country, whether public or private, are tax-free, offering greater economic benefits than commercial schools.
As with businesses and businesses, revenue generated by tax-free organizations must return to fundraising operations rather than the hands of stakeholders and institutional leaders.
Can the IRS cancel my tax-free status?
Federal law allows the IRS to revoke the tax-free status of a company.
The IRS must complete the audit and notify the affected organization before revoking its 501(c)(3) status. According to the agency, the management process must be exhausted before a dispute is brought to tax or federal court.
“The prohibition applies to both direct requests and requests through intermediaries. There are limited exceptions to this prohibition, so each request must be evaluated individually.”
Has the IRS previously stripped of their tax-free college status?
Forty-two years ago, the Supreme Court upheld a federal agency’s decision to revoke Bob Jones University’s tax-free status for discriminatory admission practices for black applicants in interracial marriage or relationships, but ultimately the agency regained its tax-free status.
Introduction to the Internal Revenue Service held in Washington on February 13th, 2025. Internal Revenue Commissioners have the authority to revoke the tax-free status of a company. Kayla Bartkowski/Getty Images
The controversy dates back to the 1970s. Initially, the federal court ordered a refund in favour of a South Carolina-based private university, citing the First Amendment religious provisions, but the Court of Appeal reversed the decision before proceeding to the Supreme Court in 1983.
With 8-1 votes, the judges supported disqualification by agents of tax-free status to private schools that practiced racism. The court said the IRS has discretion to determine whether the nonprofit has been found to be charitable. In other words, he said, “It must serve a public purpose and is not against established public policy.”
Possible courts fight first
Neal McCluskey, director of the Cato Institute’s Center for Education Freedom, said Harvard would not hesitate to file a lawsuit if the federal agency revokes its tax-free status.
“I’m sure this will be fought in court before it can cause financial debilitating,” he told the Epoch Times.
Genevieve Lakier, revision scholar at the University of Chicago Law School, said that the first revision should be free to teach the university, allowing students and professors to be free to decide who they are.
“It is an irreducible core of academic freedom and is constitutionally protected in this country,” she said, adding that the government cannot threaten funding cuts or revoke the status of schools’ taxes as a punishment for its views and what schools are teaching.
How did you get here?
Trump campaigned to eliminate DEIs in higher education, and shortly after taking office, he issued an executive order calling for the termination of programs such as diversity training and employment, admission and racial preferences in mentoring in accordance with the Civil Rights Act of 1964. He issued another order regarding the ban on anti-Semitic activities on school campuses.
Students will protest the camp against the war in Gaza at Harvard University in Cambridge, Massachusetts on April 25, 2024. Ben Curtis, File/AP Photo
Trump said he would audit schools for evidence of DEI, and federal agencies discovered a violation at Harvard University during the investigation. Meanwhile, the Palestinian demonstrations and events suspected of anti-Semiticism at the Ivy League facility began on October 7, 2023 by terrorist group Hamas, following an attack on Israel, which led to the resignation of former university president Claudingay and lawsuits against the school from Jewish students who said they were harassed.
What is at risk?
If Harvard’s tax-free status is revoked, donations could be reduced as they would have to pay millions of dollars each year in local property taxes and income tax credits would become unavailable to contributors.
Harvard employees pay income taxes, but as a non-profit institution, Harvard does not have to pay taxes for businesses, businesses, etc. or collect sales taxes from customers.
“The goal is not to bring in more money than what goes into surgery,” McCluskey said.
Jason Newton, director of media relations at Harvard University, said losing tax-free status would put the university’s education mission at risk.
“Tax exemption means that more dollars can move towards scholarships for students, life-saving medical research and technological advancements that drive economic growth,” he argued in an email to the Epoch era that the Trump administration has no legal basis to withdraw Harvard’s tax exemption status.
“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 broad and wider and more intense consequences.”
Can Harvard afford this fight?
According to McCluskey, Harvard has $53 billion in donations, but within the pot of money there are 14,600 individual funds limited to specific purposes, including funding program chairs for several years. Much of this is dedicated to student aid.
“It’s not just a pool of money,” he said, adding that legal challenges have arisen when institutions attempted to use donations beyond their dedicated functions.
Apart from the potential losses of $2.2 billion grants and a $60 million contract potential loss due to breach of the Trump administration’s recent letter, Harvard is also expected to lose millions of research funds under the new National Health Institute, which is 15% higher than the new National Health Institute’s up and down costs.
Harvard University Association of College Professors Union sued the Trump administration on April 11 after the initial announcement that $9 billion in grants and contracts were in question for violations of Day and the president’s executive order banning anti-Semitism.
On April 8, Harvard announced it would borrow $750 million due to financial uncertainty related to potential cuts.
President Donald Trump said when he signed the executive order in his elliptical office on April 17, 2025. Alex Brandon/AP Photo
A March 17 news release found that 55% of Harvard undergraduates receive financial assistance, with the average family paying $15,700 for the 2023-2024 academic year.
McCluskey said Harvard also has a strong network of wealthy graduate donors, and would likely help its alma mater financially if its tax-free status is temporarily or long-term revoked.
The Associated Press contributed to this report.
