With the President's social media threat of 501(c)(3) charitable status revocation of Harvard University, it surely has caused folks (including those who generally know what needs to be done to maintain charitable status) to wonder about the process the IRS would need to take to actually seek and obtain revocation (including the appeals pathway if, somehow, things got that far).
Now you know why charities were so opposed to H.R. 4945 that was proposed but not passed at the end of the last Congress. It would have allowed the IRS to revoke 501(c)(3) status of any charity it “designated” as one that had given material support to terrorists within the prior three years. Material support includes providing money, training or advice. Does anyone doubt that the Trump Administration could not have found or alleged that someone at Harvard had given Palestinians, who would all be equated with Hamas, a few dollars or some advice within the last three years? After all, it has been reported by the New York Times that Israeli Prime Minister Benjamin Netanyahu encouraged millions of dollars a month in payments from Qatar into Gaza that had been used to prop up Hamas for years. It would be so much easier to revoke Harvard’s exemption for “aiding terrorists” than by proving it is not acting primarily for charitable and educational purposes as required by law.
Assuming that President Trump could find someone to answer the phone at the IRS, it would be a violation of section 7217 of the Tax Code for the President or certain other high level executive officers to ask anyone at the IRS, directly or indirectly, to conduct an investigation of any specific taxpayer. There is an exception to the rule that allows the Secretary of Treasury to seek an investigation if there is a “change in tax policy.” But it seems highly unlikely that the kind of change in tax policy envisioned by the statute would include adopting a new policy of seeking retribution against a taxpayer who refuses to do what the President wants.
Assuming that the IRS had been considering investigating Harvard even before the President went on social media to say how nice it would be if Harvard lost its exemption (as conveniently reported promptly after his public statements), there is an extensive investigative procedure (called an audit) by which it would have to allow the University multiple opportunities to show that it is meeting the requirements of the Tax Code and not violating any of its prohibitions.
The IRS lists on its website the type of issues that can cause loss of exemption: private benefit/inurement, excessive lobbying, electioneering, “too much” unrelated business income, and failing to file a Form 990 tax information form for three consecutive years. It can also revoke an exemption for failing to conduct the charitable activities for which the organization is exempt or, in very rare cases, violating a long-standing significant public policy, such as discriminating against black students at Bob Jones University. The audit process is generally extensive, with many opportunities for the challenged organization to appeal within the IRS structure. An organization also has a right to appeal to court, going up to the Supreme Court if necessary, if the IRS issues a final adverse determination. It can take years to resolve the issue.
It is hard to believe that Harvard is not qualified for a 501(c)(3) exemption as a charitable and educational institution. Unfortunately, that does not mean that this Administration won’t try to revoke it.
Friday, April 25, 2025
This question brought an unusual amount of reader response, and a noticeable lack of unanimity. Here is some of it, generally in the order received:
“Thank you! I just do not know what else to say in these times.” E.G.
“What was the point of this statement as it does not seem relevant to the argument about Harvard’s tax exempt status and conflates two separate ‘issues’?: ‘After all, it has been reported by the New York Times that Israeli Prime Minister Benjamin Netanyahu encouraged missions of dollars a month in payments from Qatar into Gaza that had been used to prop up Hamas for years.’
“Additionally, citing NYTimes as a veritable source for any Israel-related news is like citing Qatari-funded Al Jazeera directly. Do Better.” S.S.
“Really?! You too!? It’s too bad you had to go political in the blog. I was enjoying your blog and refreshing professionalism. Oh Well. Guess I was expecting too much.” K.B.
“Please cancel my subscription.” T.S.
“Great article and one I would like to share with my students in the course Legal and Ethical Issues in Arts and Culture [in a graduate program at a University]. S.E.
“Thank you for the article!” J.G.
“The answer in your weekly column addressed a question swirling around in my head regarding revoking tax-exempt status. I had no idea of HR 4945. Thank you for your insightful answer, along with the colorful humor.” L.R.
“Trump’s appetite for bullying is insatiable.” B.M.
“I hope to see a follow up article on whether or not the Obama Administration IRS' targeting certain anti-Obama Tea Party groups or individuals for special consideration was also against the law as this article suggests is now the case with Trump and the IRS.” V.P.
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