(Bloomberg) — President Donald Trump said Harvard University would lose its tax-exempt status, stepping up his attack on the Ivy League school with a threat that was decried as out of his jurisdiction.
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Trump made the announcement after weeks of threatening a change to the school’s tax-free treatment. “We are going to be taking away Harvard’s Tax Exempt Status. It’s what they deserve!” Trump wrote in a post early Friday morning.
Harvard maintained there’s “no legal basis” to rescind its tax-exempt status and Trump’s announcement sparked swift criticism. Rep. Richard Neal, the ranking Democratic member on the House’s tax-writing committee, described the move as illegal and said the president was weaponizing the Internal Revenue Service.
Four Democratic Senators, including Elizabeth Warren of Massachusetts, called early Friday for an investigation of whether Trump’s targeting of Harvard violates a criminal law barring the president from ordering the IRS to punish his political opponents or reward his allies.
Under federal law, the president, vice president or their employees cannot direct an IRS official to “conduct or terminate an audit or other investigation of any particular taxpayer with respect to the tax liability of such taxpayer.”
As of Friday morning, it was unclear if Trump’s announcement stemmed from his decision or that of the tax agency.
“I can’t understand how the president is operating as if he has the power to direct this. He doesn’t and is specifically prohibited from doing this,” said Steven Bloom, assistant vice president for government relations at the American Council on Education.
The power to revoke tax benefits lies with the IRS and it’s a lengthy process that begins with an examination, he said. Harvard would also have the opportunity to remedy any issues, according to Bloom.
Tenenbaum Law Group, a Washington, DC-based law firm that represents nonprofits, said in an April 28 report that federal tax-exempt status cannot be taken away with a “stroke of a pen.”
“Those procedures require individual case-by-case IRS audits of each organization, with ample opportunity for the entity to defend itself, and including multiple routes of appeal,” the law firm said.
Painful Blow
Conservatives have targeted Harvard and other elite universities in recent years over accusations of ideological bias and allegations of a rise in antisemitism amid campus protests against the war in Gaza. Trump and other Republicans have accused the institutions of promoting liberal agendas and so-called “wokeness.”
The White House, IRS and Treasury Department declined to comment.
“The government has long exempted universities from taxes in order to support their educational mission,” a Harvard spokesperson said in an emailed statement.
The school said that the action would result in diminished financial aid for students and the abandonment of critical medical research programs. “The unlawful use of this instrument more broadly would have grave consequences for the future of higher education in America,” the statement said.
Some 1,700 private colleges operate as nonprofits given their contributions to society. They receive that benefit as part of a section of the tax code, which specifically mentions education as being a purpose that can receive the exemption.
Stripping Harvard’s tax-exempt status completely would deal a painful financial blow to the university. Harvard’s tax-exempt status affords the school a variety of benefits, such as not having to pay traditional property taxes on educational buildings. It can sell bonds that pay interest that’s exempt from federal taxes, which lures investors and helps lower borrowing costs.
A Bloomberg News analysis estimated that Harvard’s tax benefits totaled at least $465 million in 2023.
Trump’s fight with Harvard has escalated since the university rejected the administration’s demands to reform campus policies, arguing they went far beyond their stated efforts of combating antisemitism and threatened the school’s independence. The administration has frozen billions of dollars in funding that supported projects including ALS and tuberculosis research, and Harvard sued several US agencies and top officials in response.
“There’s a process that has to be followed that would probably take a number of years,” said James Repetti, a law professor at Boston College who spoke in an interview before Trump’s announcement. “It would likely take a long time to work its way through the courts,” Repetti said.
The IRS has revoked a college’s tax-exempt status before, in a process that took years. Bob Jones University in South Carolina lost its federal tax-exemption in 1976, because of its policies banning interracial dating. The decision was upheld by the Supreme Court in 1983. Bob Jones University dropped the policy in 2000 and regained its tax benefits in 2017.
Analysts at JPMorgan Chase & Co. pointed to the Bob Jones precedent in an April research note saying that if the IRS did move to revoke Harvard’s tax-exempt status, “we would expect immediate legal action, that could take years to resolve, extending beyond the current administration’s term in 2028.”
Strong Balance Sheet
As the wealthiest school in the country, Harvard has a lot of firepower available to fend off surprise blows. It’s armed with pristine credit ratings and a $53 billion endowment. In fiscal 2024, the school raked in $6.5 billion of revenue and enjoyed a $45 million surplus.
Harvard has also recently taken steps to shore up more cash through a $750 million taxable bond sale. Officials from the endowment have previously discussed selling about $1 billion of private equity fund stakes.
Earlier this week, the university released long-awaited reports on antisemitism and anti-Muslim bias that painted a scathing picture of how students treated each other in the wake of the Hamas attack against Israel on Oct. 7, 2023.
“I’m sorry for the moments when we failed to meet the high expectations we rightfully set for our community,” Harvard President Alan Garber said in a letter accompanying the reports.
Garber has acknowledged the need to tackle antisemitism, noting that he’s experienced it directly while serving as the university’s leader, and said Harvard is committed to working with the administration.
In recent weeks, the school placed the Harvard Undergraduate Palestine Solidarity Committee on probation and forced the faculty leaders of the Center for Middle Eastern Studies to leave their posts. Harvard also suspended a partnership with Birzeit University in the West Bank and renamed its diversity, equity and inclusion office as Community and Campus Life.
–With assistance from Janet Lorin, Magan Crane, Alisa Parenti and David Voreacos.
(Updates to add details on IRS process and restrictions beginning in third paragraph.)
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