Harvey P. Dale (NYU), Daniel J. Hemel (NYU; Google Scholar) & Jill S. Manny (NYU), What Are the Real Tax Risks for Harvard?, 187 Tax Notes Fed. 1447 (May 26, 2025):

Although we focus here on Harvard — the principal target of Trump’s revocation threats so far — our analysis has implications for other nonprofit organizations and broader policy debates. First, we highlight steps that nonprofit organizations can take to minimize the tax consequences that would follow from the politically motivated revocation of their section 501(c)(3) status. This analysis provides both a risk assessment and a playbook for institutions pushing back against a potential presidential attack.

Second, our analysis helps to contextualize claims by Vice President JD Vance and some congressional Republicans who say that Harvard and other universities benefit from “special tax breaks” that cause those institutions to pay tax at rates “far lower than what most hardworking Americans pay.” Although Harvard’s effective income tax rate is, and would remain post-revocation, much lower than the rate paid by many American workers, the primary reason for Harvard’s low effective rate is not a special tax break unique to universities but a generally applicable provision, section 102, that extends to every American who receives a holiday gift or birthday present. Congress is considering a proposal to ratchet up the tax rate on the investment income of the largest university endowments from 1.4 percent to as high as 21 percent, in line with the corporate income tax rate. That proposal appears to be based at least in part on the belief that section 501(c)(3) status “provides universities with a state-created advantage over . . . taxable corporations.” As we will show, that advantage is, at most, modest and possibly nonexistent.

None of this is to deny that Trump administration actions other than the threat of revoking section 501(c)(3) status pose a clear and present danger to Harvard and other American universities. The Trump administration’s move to freeze $2.2 billion in multiyear grants to Harvard will weaken the university financially if courts do not act quickly to lift the freeze. International students constitute 27.2 percent of Harvard’s student body; thus, the Trump administration’s revocations of student visas could disrupt university finances as well as campus academic life. And within the realm of tax, House Republicans’ proposal to increase the tax rate on the investment income of the richest private colleges and universities to 21 percent — which would affect Harvard whether or not it remains a section 501(c)(3) organization — would slow the growth of Harvard’s endowment and leave the university more vulnerable to future financial shocks.

We begin by considering how Harvard’s own federal tax liability would change if it lost its exemption under section 501(c)(3). We then take stock of potential ramifications for Harvard’s ability to receive tax-deductible donations and to issue tax-exempt debt. We end by evaluating interactions between federal tax exemption and Harvard’s state and local tax liabilities.

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