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Accounting

Can Trump Strip Harvard of Its Charitable Status?

Strategic Insights

— 1 min read

Harvard University's tax-exempt status, a blessing and a curse, has been threatened by President Donald Trump's administration. The president has repeatedly signaled his intention to strip Harvard of its charitable status, citing the university's diversity, equity and inclusion programs as a potential violation of a "fundamental public policy." However, scholars of nonprofit law and accounting have outlined the significant obstacles that the Trump administration would face in achieving this goal. Reaching a decision to revoke Harvard's tax-exempt status would be a long and arduous process, requiring a thorough audit and review by the Internal Revenue Service (IRS).

Key Takeaways:

  • The IRS rarely revokes a nonprofit's tax-exempt status for failure to operate for a charitable purpose.
  • The IRS must first conduct an audit of the nonprofit and obtain evidence of wrongdoing before proceeding with revocation.
  • The government must find that the nonprofit's operations have a "substantial nonexempt purpose" to revoke its tax-exempt status.
  • Harvard would have the right to appeal any proposed revocation of its tax-exempt status in court.
  • Revoking Harvard's tax-exempt status could have significant consequences, including subjecting the university to federal income tax, losing the ability to receive tax-deductible gifts from donors, and facing local tax penalties.
  • The Trump administration's rationale for revoking Harvard's tax-exempt status is unclear, but its attack on diversity, equity and inclusion programs may be a key factor.
  • The administration's campaign against Harvard could have significant consequences, including a drain on the university's resources and a chilling effect on academic freedom.

Statistics:

  • The IRS audits approximately 1% of all nonprofits each year.
  • The average audit process takes around 6-12 months.
  • If the IRS finds evidence of wrongdoing, it may propose revoke the nonprofit's tax-exempt status.
  • Harvard's endowment is valued at over $50 billion.
  • The university's tax-exempt status allows it to avoid paying federal income tax on its endowment.

Sources:

  • Philip Hackney, "Can Trump strip Harvard of its charitable status?"
  • Brian Mittendorf, "What happens if a big nonprofit loses its charity status?"
  • The Conversation, "Can Trump strip Harvard of its charitable status?"

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