Can the President Revoke Harvard’s Tax-Exempt Status?

For decades, most U.S. colleges and universities have been largely tax exempt. Yet President Trump has called for the revocation of Harvard University’s 501(c)(3) tax-exempt status, in part because of its “DEI” practices. Will this work?

No. And maybe yes.

To start with, revocation of an organization’s tax-exempt status cannot be done with the flick of a President’s pen. There are procedures for revoking federal tax exemption, which is a decision made by the Internal Revenue Service after an audit, the opportunity for the organization to defend itself, and an appeal process. The President is not supposed to ask the IRS to decide one way or the other, pursuant to a 1998 federal law passed by Congress in an effort to increase trust in tax enforcement. This means that President Trump may not accomplish this goal through an executive order (much less a proclamation on Truth Social).

But can the IRS take steps to strip a college of its tax-exempt status? Yes, and this has been done before.

In 1970, the IRS revoked the tax-exempt status of Bob Jones University because the school prohibited interracial relationships among students. The IRS reasoned as follows: § 501(c)(3) requires tax-exempt entities to be “organized and operated exclusively for religious, charitable . . . or educational purposes,” which also means that their practices may not be contrary to fundamental public policy. Since the school’s racial segregation policies were contrary to the compelling government public policy of “eliminating racial discrimination,” it was not “charitable” as required for tax-exempt status.

The Supreme Court upheld the IRS’s decision in Bob Jones University v. United States (Bob Jones). The Court acknowledged the “very broad authority” Congress vested in the IRS to interpret tax laws, and that such interpretation was to be based on “contemporary standards” regarding whether an activity provides a public benefit. The Court looked to history to exemplify how contemporary standards change over time, discussing the “pall” of Plessy v. Ferguson’s approval of racial segregation, and how Brown v. Board of Education “signaled an end to that era” in education in 1954, paving the way for the government to embrace racial equality in schools.

The Bob Jones Court considered three decades of executive orders (EOs) across the administrations of Presidents Truman, Eisenhower, and Kennedy, noting that these EOs consistently prohibited racial discrimination in federal employment decisions or sought to end racial segregation. It also examined “[a]n unbroken line of cases following Brown,” concluding that “[o]ver the past quarter of a century, every pronouncement of this Court and myriad Acts of Congress and Executive Orders attest a firm national policy to prohibit racial segregation and discrimination in public education.”

Against this history, the Court held that “the position of all three branches of the Federal Government was unmistakably clear . . . that a racially discriminatory private school ‘is not charitable’” as required for tax-exempt status. Importantly, the Court emphasized that “these sensitive determinations should be made only where there is no doubt that the organization’s activities violate fundamental public policy.”

Forty years later (and not in a Tax Code context), the Supreme Court held in Students for Fair Admissions v. Harvard (SFFA) that race-based affirmative action programs in most college admissions are unconstitutional because they permit distinctions based on race. The SFFA Court again engaged in a historical analysis, noting that Brown had “invalidat[ed] all de jure racial discrimination by the States and Federal Government,” and that Grutter v. Bollinger (2003) had held that “all race-conscious admissions programs [must] have a termination point.” The SFFA Court held that schools may not “separat[e] students on the basis of race without an exceedingly persuasive justification that is measurable and concrete enough to permit judicial review,” and it found that the “standardless” justifications advanced by Harvard and UNC—such as “training future leaders” or “better educating its students through diversity”—failed to meet that high burden.

What do Bob Jones and SFFA suggest for schools that implement “DEI/DEIA” policies? Can we assume that all programs labeled “DEI” necessarily involve racial discrimination that provides grounds for revoking tax-exempt status?

Probably not. It is the burden of the government—specifically, the IRS—to articulate a basis for revoking tax-exempt status, and the high-level concept of “Diversity, Equity, Inclusion and Accessibility,” writ large, is too vague to be analyzed as either pro- or anti-public policy. And even if the government could define this term with precision—which it has failed to do thus far—the lack of consensus within the government regarding the virtues or evils of DEI likely also fails Bob Jones’s requirement that there be “no doubt” that a practice violates a fundamental public policy before tax-exempt status is revoked based on that practice.

Indeed, the concept of DEI in the United States began gaining traction in the early 2010s, with its popularity surging significantly around 2020. During that relatively short period, there has been a deep divide within the executive branch alone regarding whether DEI is contrary to or consistent with fundamental public policy, as highlighted by President Trump’s own executive orders. This contrasts sharply with the “three decades” in which the subject of racial segregation in education was “ventilated” before “the position of all three branches of the Federal Government [became] unmistakably clear,” as the Supreme Court said in Bob Jones.

On the other hand, if a school is engaging in the types of practices the Supreme Court has held to constitute impermissible race discrimination—including “race-conscious” programs or those that condition eligibility for educational benefits on one’s race—that conduct may jeopardize the school’s tax-exempt status under SFFA. Yet this would be the case regardless of whether those programs are components of larger DEI efforts.

It remains to be seen whether the IRS will take up the mantle of auditing schools or nonprofit organizations to determine whether they are engaged in practices that unconstitutionally discriminate by race. But one thing seems clear from precedent: invoking DEI/DEIA will not be independently sufficient to revoke tax-exempt status.