Can the IRS strip Harvard of its tax-exempt status? Here's what to know.

The conflict betwixt President Trump and Harvard University has moved to a caller front, with the IRS present considering whether to revoke the Ivy League school's tax-exempt status. 

A last determination has not yet been made by the IRS, CBS News' Aaron Navarro reports. But the effort comes aft Mr. Trump connected Tuesday suggested that Harvard could suffer its taxation exemption. The taxation agency's determination to see whether to portion Harvard of its designation arsenic a 501(c)(3) enactment was earlier reported by CNN. 

The IRS has awarded tax-exempt presumption to astir 2 cardinal organizations, ranging from universities similar Harvard to charities specified arsenic churches and foundations. The designation exempts these groups from paying national income taxes, portion donations to these groups are considered tax-deductible by the IRS.

Mr. Trump's scrutiny of Harvard's taxation presumption comes aft the assemblage connected Monday rejected his administration's demands to alteration galore of the school's policies and leadership, including auditing the pupil assemblage and module for "viewpoint diversity." After Harvard announced its decision, the Trump medication this week moved to frost $2.2 cardinal successful grants for Harvard. 

The Trump medication has besides threatened to chopped disconnected national backing astatine other top universities as it exerts unit connected the institutions' policies governing pupil look connected field and world programs. 

But stripping an enactment of its tax-exempt presumption is an antithetic step, particularly for an instauration the size and estimation of Harvard, experts said. 

"It would beryllium historically unprecedented," Brian Galle, prof of taxation argumentation astatine Georgetown University, told CBS MoneyWatch. "Certainly nary large probe assemblage has ever mislaid its taxation exemption."

Here's what to cognize astir the issue. 

Why is Harvard taxation exempt?

Organizations that person a intent deemed to beryllium "charitable, religious, educational, scientific, literary, investigating for nationalist safety, fostering nationalist oregon planetary amateur sports contention and the prevention of cruelty to children oregon animals" tin suffice for tax-exempt status, according to the IRS.

Most backstage and nationalist universities and colleges person been granted tax-exempt presumption by the IRS due to the fact that of their acquisition mission, which the national authorities has recognized for their value successful fostering the productivity and civic contributions of American citizens, the Association of American Universities says.

Can Mr. Trump bid the IRS to region Harvard's tax-exempt status?

Not legally, according to Sam Brunson, a prof astatine Loyola University Chicago School of Law and an adept connected national income taxation and nonprofit organizations.

That's due to the fact that Congress successful 1998 passed a law that forbids the president from directing the IRS to audit oregon analyse taxpayers, helium explained. If Mr. Trump instructed the IRS to region Harvard's taxation exemption, "that runs precisely contrary to law," Brunson said.

In an email to CBS MoneyWatch, the White House said, "Any forthcoming actions by the IRS volition beryllium conducted independently of the President, and investigations into immoderate institution's violations of its taxation presumption were initiated prior" to Mr. Trump's societal media station this week questioning Harvard's tax-exempt status. 

The IRS did not respond to a petition for comment. 

Could the IRS region Harvard's taxation exemption?

The IRS has ineligible authorization to portion organizations of their tax-exempt status, and it occasionally exercises that power. But that is usually owed to groups failing to conscionable taxation requirements, similar neglecting to file an yearly accusation instrumentality for much than 3 consecutive years. 

One celebrated lawsuit progressive a assemblage losing its tax-exempt status, Galle and Brunson noted. In the 1970s, Bob Jones University successful Greenville, South Carolina, a Christian institution, mislaid its tax-exempt presumption owed to a argumentation that banned interracial relationships.

That lawsuit ended up astatine the Supreme Court, which ruled successful 1983 that the IRS was close successful depriving Bob Jones of the presumption due to the fact that its rules had violated a "fundamental nationalist national policy" astir radical favoritism successful education.

The IRS could reason that Harvard is successful usurpation of nationalist argumentation either by failing to ace down connected protestors rallying against Israel's actions successful Gaza oregon by refusing to comply with the Trump administration's propulsion against diversity, equity and inclusion policies, Brunson said. But some helium and Galle expressed skepticism that specified rationales would clasp up successful court, partially due to the fact that universities person a law close to state of speech, portion besides representing issues that are acold antithetic from the practices that Bob Jones engaged in.

"There isn't a society-wide statement that allowing protests connected your field is inconsistent with cardinal nationalist policy," Galle said. 

He added, "Let's beryllium clear: There is perfectly nary ground for Harvard to suffer its exemption. Zero."

What happens if the IRS strips Harvard of its tax-exempt status?

The IRS would archetypal bash an probe and past pass Harvard of its crushed for removing its tax-exempt status, Brunson said. Harvard could past record an entreaty to the IRS. If that entreaty failed, the assemblage could past instrumentality the contented to the courts.

As the lawsuit proceeded, it's apt that a tribunal would contented an injunction oregon bid to halt the IRS' decision, which means that Harvard would apt proceed to run arsenic a tax-exempt instauration until the lawsuit was resolved, experts said. 

"Harvard isn't going to suffer this — they person the wealth and the resources and the alumni to get the champion radical representing them," Brunson said. He predicted that Harvard would triumph a tribunal lawsuit and "set a precedent."

How could losing tax-exempt presumption impact Harvard? 

Harvard could instrumentality a fiscal deed if it were to suffer the tax-exempt status. But the grade of immoderate resulting harm would beryllium unclear fixed that Harvard could usage taxation strategies to little its taxable income, akin to however large corporations trust connected blase techniques to trim their taxation liability. For instance, Harvard could little its taxable income by deducting concern costs, including its module salaries. 

By contrast, donors to Harvard could consciousness the interaction due to the fact that they wouldn't beryllium capable to deduct their contributions to the assemblage from their ain taxes. That could marque it little palatable for donors to marque ample fiscal contributions.

"The biggest outgo would beryllium reduced donations," Brunson said. "And the different outgo is its endowment, which would nary longer beryllium taxation exempt."

Harvard's endowment stands astatine $52.3 billion, making it the biggest among each U.S. universities.

What does Harvard accidental astir the hazard to its tax-exempt status?

In a connection to CBS News, Harvard reiterated that specified a determination would beryllium illegal. 

"The authorities has agelong exempted universities from taxes successful bid to enactment their acquisition mission," a spokesperson wrote successful an email. "The taxation exemption means that much of each dollar tin spell toward scholarships for students, lifesaving and life-enhancing aesculapian research, and technological advancements that thrust economical growth."

The spokesperson added, "There is nary ineligible ground to rescind Harvard's tax-exempt status."

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• IRS
• Donald Trump
• Trump Administration
• Harvard