No University Is Above the Law
"Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting 'Sickness?,'" President Donald Trump posted on his Truth Social platform very recently.
"Remember, Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST!"
By last Wednesday, reports suggested that the Internal Revenue Service (IRS), which determines tax-exempt status by administrative protocol, was already studying Harvard’s tax-exempt status with an eye toward revoking it.
Higher education is wavering between fear and defiance as the Trump administration employs governmental power to withhold federal funds from institutions found to have violated civil rights laws.
Over the last month, multiple government agencies have paused or cancelled billions of dollars in federal grants and contracts.
Those federal grants and contracts were bound for institutions with questionable records on civil rights enforcement, including measures to protect Jews and women, disestablish DEI programs, curb pro-terrorist activism, and abandon the use of race in admissions.
So far, almost all affected schools have entered into discussions with the relevant agencies to recover their funds.
On April 14, Harvard University, the largest federal grantee in higher education, formally refused to meet government requirements.
Upon its refusal, it was deprived of $2.26 billion in federal funds (about $7 billion more, which is granted to institutional partners of Harvard but not the university itself, is on the line but has not been cancelled), or just over one-third of its 2024 operating budget.
That's a sizeable number, and reports indicate that Harvard has been seeking high-value financing and considering other options to make up the difference — even if simply obeying federal civil rights laws appears to be off the table.
According to some calculations, the unrestricted portion of Harvard’s $53.2 billion endowment — or about 20% of the total — could easily cover the lost federal funds and leave some $8.4 billion for future purposes.
A glance at Harvard’s most recently available tax returns reveals administrative bloat and soaring executive compensation that could be trimmed.
Does a university really need 11 vice presidents, nine of whom are paid over $500,000 per year?
Lawsuits filed on the behalf of Harvard faculty members by the American Association of University Professors, and this week by Harvard itself, could at least temporarily halt the cuts if they come before the right judges.
Even if those strategies work, however, Harvard’s tax-exempt status could prove an Achilles’ heel, not only there but at any non-compliant university.
Tax-exempt status, granted under section 501(c)(3) of the Internal Revenue Code, allows organizations with a non-profit and non-partisan charitable purpose to operate without paying taxes on income, property, or purchases.
It further allows donors to claim an unlimited amount in deductions from their own federal income tax obligations.
Harvard’s losing its tax-exempt status would make it liable for taxes on par with any for-profit corporation while also disincentivizing donations, which would no longer convey any tax benefit.
Can it be done?
Certainly.
As President Trump correctly noted in his post, the test for tax exemption is conditional and rests on the IRS’s determination of whether an entity’s purpose and operations are in the public interest, confer "public benefit," and support public policy.
As the Internal Revenue Code makes clear, discriminatory policies "cannot be viewed as conferring a public benefit within the 'charitable' concept" of the common law" or "within the Congressional intent" in establishing tax-exempt categories under federal law.
In the foundational case of Bob Jones University v. United States, 461 U.S. 574, (1983), the U.S. Supreme Court agreed with the IRS that "government has a fundamental, overriding interest in eradicating . . . discrimination in education" and that this public interest "substantially outweighs whatever burden denial of tax benefits places" on an offending institution.
The high court found that this applied even to First Amendment rights, to which both Bob Jones University and Harvard appealed to justify their policies.
Bob Jones’s loss of tax-exempt status was accordingly upheld and only restored after the university abolished its discriminatory policies in full.
In subsequent cases, authorities denied or removed tax-exempt status from multiple organizations that had discriminatory membership policies, operated racist missions, conducted activities intended to undermine public order, or showed partisan political bias.
In Bob Jones, moreover, the Supreme Court purposely left the scope of violations broad, to the extent that having just one discriminatory program or policy among many, even at a large and complex institution, is sufficient to merit disqualification from tax-exempt status.
Earlier this month, the American Alliance for Equal Rights, a Texas-based non-profit that monitors the public sphere for instances of unlawful discrimination, filed a complaint with the IRS against the Gates Foundation, which reportedly holds over $75 billion in assets, because one of its scholarship programs was closed to whites.
Very soon after AAER’s president Ed Blum publicized the complaint and the legal theory behind it in an op-ed in The Wall Street Journal, the Gates Foundation opened eligibility to all races, likely saving its tax-exempt status.
But as Harvard may well find out, the threat to its tax-exempt status is all too clear and can readily be used against it.
No university is above the law.
Paul du Quenoy is President of the Palm Beach Freedom Institute. Read Paul du Quenoy's Reports — More Here.