What Revocation of Tax Exempt Status Means

After writing this blog for about two and a half years on such “normal” college topics like admissions essays, mental health on campus, and how to study effectively, among others, I find myself on very unsteady ground when it comes to determining what to write next. The president’s attacks on colleges and universities have been swift, many, and, I am pretty sure, illegal, but I will leave that last one to the courts. It is hard to think about the usual issues I’ve discussed in this blog as they seem irrelevant compared to the recent executive orders that have affected higher education, the various pronouncements the president seems to blithely toss around, and his social media posts that tie our intestines in knots. As everyone knows by now, the president of our country has attacked Harvard with a vengeance that is hard to comprehend. Harvard, for its part, has refused to accede to the president’s demands which include “audits” of academic programs and departments and changes to the University’s governance structure and hiring practices” (https://news.harvard.edu/gazette/story/2025/04/harvard-wont-comply-with-demands-from-trump-administration/).

The demands also include reforms to its governance policies and to hiring and admissions practices of domestic and international students, ensuring viewpoint diversity, reforming programs with “egregious records of antisemitism and other bias,” the discontinuation of DEI, student discipline, whistleblower reporting and protections, and transparency (https://www.harvard.edu/research-funding/wp-content/uploads/sites/16/2025/04/Letter-Sent-to-Harvard-2025-04-11.pdf).

President Alan Garber said that Harvard would not comply. In retribution, the president announced first, that Harvard could be stripped of its tax exempt status. On May 2, 2025 he announced that Harvard would be stripped of its tax exempt status. Over the past month the president has announced additional sanctions such as removing Harvard from the SEVIS (Student and Exchange Visitor Program) system that allows the university to admit international students. For now, let's take a look at tax exempt status and see what this means?

Nearly all colleges and universities in the United States are tax exempt and considered 501 (c) (3) organizations because

. . . of their educational purposes—purposes that the Federal government has long recognized as fundamental to fostering the productive and civic capacities of citizens . . . The educational purposes of universities and colleges—teaching, research, and public service—have been recognized in federal law as critical to the well-being of our democratic society. Higher education institutions are in turn exempted from income tax so they can make the most of their revenues. This tax exemption enables these institutions to maximize the benefits that they provide society, including: an educated citizenry which is essential to our democracy; a highly-educated, skilled, and productive workforce which is critical to our nation’s competitiveness; and new innovations and technologies that improve our quality of life, strengthen our security, and fuel economic growth. . . Because of their tax exemption, universities and colleges are able to use more resources than would otherwise be available to fund: academic programs, student financial aid, research, public extension activities, and their overall operations (https://www.aau.edu/sites/default/files/AAU Files/Key Issues/Taxation & Finance/Tax-Exempt-Status-of-Universities-FINAL.pdf).

According to Harvard spokesperson Jason A. Newton, the revocation of tax exempt status

would endanger our ability to carry out our educational mission. It would result in diminished financial aid for students, abandonment of critical medical research programs, and lost opportunities for innovation. The unlawful use of this instrument more broadly would have grave consequences for the future of higher education in America (https://www-chronicle/article/what-revoking-tax-exempt-status-would-mean-for-harvard-and-the-rest-of-higher-ed).

If Harvard’s tax exempt status—or that of other universities—was revoked it would have broad ramifications for the institution. Right now, everything from small items—a purchase of printer paper, poster board, and staples—to larger items such as cell sorters and biomolecular imagers is tax free. The amount of money Harvard saves due to its tax exempt status is astronomical—in the range of $1 billion a year according to The Chronicle of Higher Education. And for any other institution it would be similar, in proportion to its budget. This is no small matter and would result in severe cuts throughout any college or university that is affected. Ultimately, students would have a far less rich college experience if they are unable to participate in their chosen sport because of budget cuts, or if the choir could not go on tour as they had in the past, or if lab equipment is old and students could not learn on cutting edge instruments, if there are fewer opportunities to engage in faculty-led research projects, and if much campus maintenance is deferred. These are just a couple of examples. And, as mentioned above, the university’s ability to offer financial aid would be negatively affected; students would have to pay more of their expenses out of pocket.

Presently, in Harvard’s case, federal data show that only three percent of Harvard’s undergraduate students take out federal student loans, and tuition, room and board, and fees are covered for students whose families earn less than $100,000 a year. Last year Harvard awarded $750 million in financial aid (https://www-chronicle/article/what-revoking-tax-exempt-status-would-mean-for-harvard-and-the-rest-of-higher-ed). Harvard would not be able to maintain this level of student financial aid if its tax exempt status is revoked. And while it is hard to predict human behavior, generous donors may not be as eager to donate when their own donations will no longer be tax exempt.

Typically, revoking a college’s tax exempt status is a process that begins with an audit by the IRS and to which Harvard or any other college would have an opportunity to respond. The president is not supposed to ask the IRS to revoke tax exempt status according to two nonprofit tax attorneys, Ellen Aprill and Samuel Brunson (https://apnews.com/article/harvard-nonprofit-tax-exempt-status-how-can-it-be-revoked-096614ea5ec65ec7a6ac08efd0f1e94f). And a law passed by Congress in 1998 forbids federal officials from doing so. There is additional legislation, according to Aprill and Brunson that prohibits the IRS from using ideology as a basis for identifying organizations to audit. I think it is anyone’s guess as to how this will play out.