The administration’s initial letter warned that $9 billion in grants and contracts would be reviewed. After some back-and-forth between the two sides, federal agencies announced April 14 that a quarter of that amount is now frozen due to the university’s inaction on the ultimatum.

“Remember, Tax Exempt status is totally contingent on acting in the PUBLIC INTEREST!”

In response to reports that the Internal Revenue Service (IRS) is looking to rescind Harvard’s tax-exempt status, White House deputy press secretary Harrison Fields told The Epoch Times that “investigations into any institution’s violations of its tax status were initiated prior to” Trump’s social media post.

He added that any IRS probe will be conducted independently of the president.

The IRS is responsible for granting 501(c)(3) status, which exempts educational, religious, charitable, civic, and labor organizations from federal income and municipal property taxes, according to the federal agency.

Tax-exempt status also allows people to make tax-deductible contributions to those organizations.

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The vast majority of higher learning institutions across the nation, whether public or private, are tax-exempt, which provides significant financial advantages over for-profit schools.

Revenues generated by tax-exempt organizations must go back into funding operations, not the hands of stakeholders or the institution’s leaders, as is the case with businesses or corporations.

The IRS must complete an audit and notify the affected organization before revoking 501(c)(3) status. An administrative process must be exhausted before the dispute can be brought to a tax court or federal court, according to the agency.

That dispute dates back to the 1970s. Initially, a federal court ordered a refund in favor of the South Carolina-based private university, citing the First Amendment’s religious clause, but a Court of Appeals reversed that decision before it proceeded to the Supreme Court in 1983.

In an 8–1 vote, justices backed the agency’s disqualification of tax-exempt status to private schools that practiced racial discrimination. The court said that the IRS had some discretion to determine whether the nonprofit qualified as having charitable purposes, meaning that it “must serve a public purpose and not be contrary to established public policy.”

“I’m pretty sure this would be fought out in court before anything financially debilitating happens to them,” he told The Epoch Times.

The First Amendment protects colleges and universities, under which they are free to decide what to teach and who their students and professors are, said Genevieve Lakier, a First Amendment scholar at the University of Chicago Law School.

Trump said he would audit schools for evidence of DEI, and federal agencies found infractions at Harvard during an investigation. Pro-Palestinian demonstrations and events of alleged anti-Semitism at the Ivy League institution, meanwhile, began after terrorist group Hamas’s Oct. 7, 2023, attacks on Israel, resulting in the resignation of former University President Claudine Gay and a lawsuit against the school from Jewish students who said they were harassed.

Harvard’s employees pay income taxes, but, as a not-for-profit institution, Harvard is not required to pay taxes like a business or corporation or collect sales taxes from customers.

“The goal is not to bring in more money than what goes into the operation,” McCluskey said.

Jason Newton, Harvard’s media relations director, said losing tax-exempt status would endanger the university’s educational mission.

“The tax exemption means that more of every dollar can go toward scholarships for students, lifesaving and life-enhancing medical research, and technological advancements that drive economic growth,” he said in an email to The Epoch Times, alleging that the Trump administration has no legal basis to rescind Harvard’s tax-exempt status.

“It’s not just a giant pool of money,” he said, adding that legal challenges have happened when institutions attempt to spend endowment money beyond its dedicated function.

Aside from the potential loss of $2.2 billion in grants and $60 million in contracts due to noncompliance with the Trump administration’s recent letter, Harvard also stands to lose millions in research money under new National Institute of Health regulations capping research grant overhead costs at 15 percent.

Harvard’s American Association of University Professors union sued the Trump administration on April 11 after the initial announcement that $9 billion in grants and contracts were in question due to noncompliance with the president’s executive orders banning DEI and anti-Semitism.

On April 8, Harvard announced that it would borrow $750 million due to financial uncertainty related to the possible cuts.

The March 17 news release said 55 percent of Harvard undergraduates receive financial aid, with the average family paying $15,700 for the 2023–2024 academic year.

McCluskey said Harvard also has a strong network of wealthy alumni donors that would presumably help their alma mater financially should its tax-exempt status be revoked temporarily or long-term.