“Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting ‘Sickness?,’” President Trump posted on his Truth Social platform last Tuesday, “Remember, Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST!” On Wednesday, unconfirmed reports suggested that the Internal Revenue Service was already studying Harvard’s tax-exempt status with an eye toward revoking it.

Higher education is wavering between fear and defiance as the Trump administration employs governmental power to withhold federal funds from institutions found to have violated civil rights laws. Over the last month, multiple government agencies have paused or canceled billions of dollars in federal grants and contracts bound for institutions with questionable records on civil rights enforcement, including measures to protect Jews and women, disestablish DEI programs, curb pro-terrorist activism, and abandon the use of race in admissions.

So far, almost all affected schools have entered discussions with the relevant agencies to recover their funds. On Monday, Harvard University, the largest federal grantee in higher education, formally refused to meet government requirements. Upon its refusal, it was deprived of $2.26 billion in federal funds (about $7 billion more, which is granted to institutional partners of Harvard but not the university itself, is on the line but has not yet been canceled), or about one-third of its 2024 operating budget.

That is a sizeable number, and reports suggest that Harvard has been seeking financing and considering other options to make up the difference. According to some calculations, the unrestricted portion of its $53.2 billion endowment could easily cover the lost federal funds. A glance at Harvard’s most recently available tax returns reveals soaring executive compensation that could be trimmed. Nevertheless, a lawsuit filed on the behalf of Harvard faculty members by the American Association of University Professors could at least temporarily halt the federal cuts if it comes before the right judge.

Even if those strategies work, however, Harvard’s tax-exempt status could prove an Achilles’ heel, not only there but at any non-compliant university. Tax-exempt status, granted under section 501(c)(3) of the Internal Revenue Code, allows organizations with a non-profit and non-partisan charitable purpose to operate without paying taxes on income, property, or purchases, and further allows donors to claim an unlimited amount in deductions from their own federal income tax obligations. Losing its tax-exempt status would make Harvard liable for taxes on par with any for-profit corporation while also disincentivizing donations, which would no longer convey any tax benefit.

Can it be done? Certainly. As President Trump correctly noted in his post, the test for tax exemption is conditional and rests on the IRS’s determination of whether an entity’s purpose and operations are in the public interest, confer “public benefit,” and support public policy.

In a definitive and foundational case, Bob Jones University v. United States (1983), the Supreme Court held that a university’s admissions policies were discriminatory on the basis of race and therefore not in the public interest, as defined by comprehensive federal antidiscrimination laws that remain in effect. As the Internal Revenue Code makes clear, discriminatory policies “cannot be viewed as conferring a public benefit within the ‘charitable’ concept” of the common law” or “within the Congressional intent” in establishing tax-exempt categories under federal law. In subsequent cases, authorities denied or removed tax-exempt status from multiple organizations that had discriminatory membership policies, operated racist missions, conducted activities to undermine public order, or showed partisan political bias.

The Supreme Court, moreover, purposely left the scope of violations broad, to the extent that having even one discriminatory program or policy is sufficient to merit disqualification for tax-exempt status.

Earlier this month, the American Alliance for Equal Rights, a Texas-based non-profit that monitors the public sphere for instances of unlawful discrimination, filed a complaint with the IRS against the Gates Foundation, which reportedly holds over $75 billion in assets, because one of its scholarship programs is not open to whites. Very soon after AAER’s president Ed Blum publicized the complaint and the legal theory behind it in a Wall Street Journal op-ed, the Gates Foundation opened eligibility to all races. But, as Harvard may well find out, the threat to its tax-exempt status is all too clear and can readily be used against it. No university is above the law.