In recent years, politicians across the political spectrum have brought the topic of private university tax-exemption into national discourse. In 2023, then-New York State Assemblymember Zohran Mamdani proposed the REPAIR Act, aiming to revoke the 501(c)3 statuses of Columbia University and New York University which exempts them from federal income and state property taxes due to their designation as charitable organizations, on grounds of \u201cegregious property accumulation.\u201d [1] More recently, President Donald Trump called for the revocation of the tax-exempt status of Harvard University for alleged antisemitic policy. [2] In June, the Treasury Department considered a blanket rule change to remove tax-exemption from universities that consider race in admissions. [3] In the cases where figures or entities challenged private university 501(c)3 status through action beyond mere words, they\u2014namely Mamdani and the Treasury\u2014only considered the strategy of changing the tax law itself. By comparison, little attention has been paid to whether legal avenues exist for revoking 501(c)3 status through the courts. While there may be practical barriers to litigation, several legal avenues for revocation have been affirmed by the courts and are applicable to the contemporary context of elite private universities.\u00a0<\/p>\n
Section 501(c)3 of the Internal Revenue Code, which contains the statues of federal domestic tax law, grants exemption from federal income tax, as well as other forms of taxes like state property tax in most states, to organizations that are organized and operated for \u201ccharitable\u201d purposes, including the \u201cadvancement of education.\u201d [4] The majority of private universities, consequently, enjoy the benefits of 501(c)3 status\u2014a fact that has become central to their finances. Columbia University, for example, saves over 300 million dollars in annual state property taxes via its 501(c)3 status. [5] In order to receive and maintain this status, however, charitable organizations must meet several requirements set forth by the Internal Revenue Service.\u00a0<\/p>\n
Among the most significant requires that organizations not operate for the benefit of \u201cprivate interests,\u201d including shareholders and \u201cdesignated individuals.\u201d [6] Organizations with 501(c)3 must abide by restrictions on lobbying activity, defined as attempts to influence actions by Congress or state and local legislatures. [7] Per the associated expenditure test, this activity, irrespective of the size of organization, cannot exceed one million dollars. [8]\u00a0\u00a0<\/p>\n
Courts have affirmed the legal validity of both requirements against petitioner challenges. In American Campaign Academy v. Commissioner (1989), the United States Tax Court affirmed the IRS\u2019s rejection of American Campaign Academy\u2019s application for 501(c)3 status on the grounds that its educational activities provided deliberate benefits to the private interests of Republican entities. [9] The Academy trained individuals to work in political campaigns, and all graduates who went on to participate in political campaigns were affiliated with Republican organizations. [10] The court ruled that the petitioner’s activities violated the IRS’s private interest rule because although students were the group to which the petitioner gave its primary benefits, its secondary beneficiaries, Republican entities, did not possess charitable characteristics. [11]<\/p>\n
In Regan v. Taxation With Representation of Washington (1983), the petitioning organization, who had been denied 501(c)3 status for lobbying activities, alleged that the prohibition on substantial lobbying was unconstitutional. [12] Taxation With Representation claimed that the burdens the prohibition placed on the receipt of tax-deductible donations violated the organization\u2019s First Amendment right to free expression and further asserted that, since the Internal Revenue Code allowed for tax-deductible contributions to veterans\u2019 organizations, the prohibition violated the equal protection component of the Fifth Amendment\u2019s due process clause. [13] The Supreme Court ruled unanimously against the petitioner, appealing to past precedent which held that constitutional rights were not violated if the federal government chose not to subsidize them in all cases. [14] Thus, both the private interest rule and the lobbying restriction have been upheld by the courts. The courts, however, have also innovated upon these original requirements.\u00a0<\/p>\n
Bob Jones University v. United States (1982) is a unique case both because it established a new requirement for 501(c)3 status and because it constitutes the only litigation involving the revocation of a private university\u2019s tax-exempt status. The IRS had revoked Bob Jones University\u2019s 501(c)3 status because its policies against interracial relationships violated a 1970 IRS policy prohibiting the granting of tax-exempt status to schools engaged in racial discrimination. [15] In response, Bob Jones alleged that the revocation violated the free exercise clauses of the First Amendment, stating that its interracial relationship policy fell under its dedication to \u201cfundamentalist Christian religious beliefs.\u201d [16] In an 8-1 decision, the Supreme Court ruled against Bob Jones, effectively establishing a \u201cpublic policy screen\u201d for 501(c)3 status, wherein organizations must not violate public policy that is \u201cfundamental\u201d and \u201cclearly expressed\u201d\u2014in this case, the policy of combatting racial discrimination was expressed by the executive, legislative, and judicial branches. [17] Acknowledging the vagueness of these terms, the court emphasized that such determinations must only be made in cases \u201cwhere there is no doubt\u201d that an organization\u2019s activities violate such policy. [18]\u00a0<\/p>\n
Each of these three legal avenues for revocation of 501(c)3 status could theoretically be used to revoke the tax-exempt status of private universities in the modern day. For example, legacy admissions, the practice of giving preference to applicants related to alumni of the university in admission processes, could be argued to violate the private interest rule. Under legacy admissions, alumni relatives can be understood as \u201csecondary beneficiaries\u201d who receive benefits in their private interest from universities, like future family income. [19] Since alumni generally do not possess charitable characteristics in the way current students do, as their relationship to the university is no longer educational after graduation, the IRS could appeal to the American Campaign Academy ruling in revoking 501(c)3 status because the universities would be providing secondary benefits to non-charitable interests.\u00a0<\/p>\n
The IRS could also use the precedent established in Regan to revoke 501(c)3 status on grounds of excessive lobbying. Columbia, for instance, tripled its lobbying spending to over one million dollars in 2025, most of which went to external lobbying firms with ties to the Republican Party. [20] This value both exceeded the IRS\u2019 hard limit for the monetary value of lobbying activities and was clearly intended to alter Congressional activity, with Columbia itself saying it aimed to change provisions in the One Big Beautiful Bill Act. [21] Thus, the IRS would have a strong legal basis for revoking the tax-exempt status of Columbia and institutions who have engaged in similarly increased lobbying during Trump\u2019s second term, as Regan established that the IRS is justified in removing status from organizations that violate lobbying restrictions.\u00a0<\/p>\n
A third avenue for revocation would involve the IRS employing the Bob Jones precedent and arguing for the existence of some other clearly defined, fundamental public policy that universities operationally violate. Though the Supreme Court attempted to set a high bar for the public policy screen, the language of \u201cno doubt\u201d has yet to be clarified by the court. The IRS could take advantage of these muddy legal waters and assert that, for example, the policy of combatting racial discrimination employed by the justices in Bob Jones is being violated by universities. Revocation on these grounds might include reference to, in line with claims being currently made by the Trump Administration, supposed failures to curb antisemitism on campuses. [22] Such an argument faces more uncertain odds of success than the previous two avenues, as the IRS would plausibly have to convince the courts that this failure amounts to a violation of policy on the same level as Bob Jones\u2019 ban on interracial relationships.\u00a0\u00a0<\/p>\n
Despite the existence of these avenues for revocation, several enforcement problems limit the extent to which the IRS is able to act against private universities. The U.S. Government Accountability Office, for instance, has noted the IRS\u2019 lack of quantitative measures for both the university sector of charitable organizations and the private interest rule in particular, along with falling rates of compliance examinations performed on charitable organizations in line with the falling IRS budget. [23] These issues make audits, the first step of the revocation process, unlikely to occur in the first place while also lessening the probability, if they do occur, that they will lead to concrete action in the judicial system.\u00a0<\/p>\n
Though these problems certainly pose a challenge to revocation of the 501(c)3 status of private universities and must be addressed, they ultimately do not change the fact that the IRS has multiple legal avenues based on firm judicial precedent for pursuing revocations against private universities. With calls to \u201ctax the rich\u201d growing in popularity on the left and legal battles with the Ivy League continuing on the right, the political pressure to challenge the tax-exempt status of elite private universities is likely to only grow in scale. In response to this pressure, politicians can leverage power over the IRS, which Trump has demonstrated in unprecedented form by selecting the service\u2019s first \u201cchief executive officer,\u201d to overcome enforcement limitations and actually pursue these avenues. [24] Universities, in turn, would be wise to prepare for the eventuality of receiving an audit notice in their mailbox.\u00a0<\/p>\n
Edited by Emma Listgarten<\/p>\n
Citations<\/p>\n
[1] Surina Venkat, \u201cMomentum builds behind REPAIR Act\u2019s second legislative run,\u201d Columbia Daily Spectator, January 20, 2025, https:\/\/www.columbiaspectator.com\/city-news\/2025\/01\/20\/momentum-builds-behind-repair-acts-second-legislative-run\/<\/a>.\u00a0<\/p>\n [2] Elissa Nadworny, \u201cTrump again threatens Harvard’s tax-exempt status, saying, ‘It’s what they deserve!’,\u201d NPR, May 2, 2025, https:\/\/www.npr.org\/2025\/05\/02\/nx-s1-5384897\/trump-harvard-tax-irs-antisemitism<\/a>.\u00a0<\/p>\n [3] Todd Gillespie and Janet Lorin, \u201cTreasury Proposals Take Aim at Hundreds of Colleges\u2019 Tax Status,\u201d Bloomberg, June 11, 2025, https:\/\/news.bgov.com\/daily-tax-report\/treasury-proposals-take-aim-at-hundreds-of-colleges-tax-status<\/a>.\u00a0<\/p>\n [4] \u201cExempt purposes – Internal Revenue Code Section 501(c)(3),\u201d IRS, https:\/\/www.irs.gov\/charities-non-profits\/charitable-organizations\/exempt-purposes-internal-revenue-code-section-501c3<\/a>.\u00a0<\/p>\n [5] Venkat, \u201cREPAIR Act.\u201d\u00a0<\/p>\n [6] \u201cInurement\/private benefit: Charitable organizations,\u201d IRS, https:\/\/www.irs.gov\/charities-non-profits\/charitable-organizations\/inurement-private-benefit-charitable-organizations<\/a>\u00a0<\/p>\n [7] \u201cLobbying,\u201d IRS, https:\/\/www.irs.gov\/charities-non-profits\/lobbying<\/a>.\u00a0<\/p>\n [8] \u201cMeasuring lobbying activity: Expenditure test.\u201d IRS, https:\/\/www.irs.gov\/charities-non-profi<\/a><\/p>\n ts\/measuring-lobbying-activity-expenditure-test<\/a>.\u00a0\u00a0<\/p>\n [9] American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989).\u00a0<\/p>\n [10] American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989).\u00a0\u00a0<\/p>\n [11] American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989).\u00a0\u00a0<\/p>\n [12] Regan v. Taxation With Representation, 461 U.S. 540 (1983).\u00a0<\/p>\n [13] Regan v. Taxation With Representation, 461 U.S. 540 (1983).\u00a0<\/p>\n [14] Regan v. Taxation With Representation, 461 U.S. 540 (1983).\u00a0<\/p>\n [15] Bob Jones University v. United States, 461 U.S. 574 (1983).\u00a0<\/p>\n [16] Bob Jones University v. United States, 461 U.S. 574 (1983).\u00a0<\/p>\n [17] University of Washington School of Law, \u201cBob Jones University and the Rule of Law\u201d (2025), https:\/\/digitalcommons.law.uw.edu\/ruleoflawinitiative\/8<\/a>.\u00a0<\/p>\n [18] Bob Jones University v. United States, 461 U.S. 574 (1983).\u00a0<\/p>\n [19] Lauren Rogal, \u201cLegacy and Largesse: The Tax Law of College Admissions,\u201d Virginia Tax Review 43, no. 2 (2023): 190<\/p>\n [20] Matt Luo, \u201cColumbia tripled its federal lobbying spending to over $1 million in 2025,\u201d Columbia Daily Spectator, January 25, 2026, https:\/\/www.columbiaspectator.com\/news\/2026\/01\/<\/a><\/p>\n 25\/columbia-tripled-its-federal-lobbying-spending-to-over-1-million-in-2025\/<\/a>.\u00a0<\/p>\n [21] Luo, \u201cColumbia lobbying\u201d\u00a0<\/p>\n [22] \u201cJoint Notice of Violation to Columbia University,\u201d U.S. Department of Health and Human Services, https:\/\/www.hhs.gov\/civil-rights\/for-providers\/compliance-enforcement\/examples\/national-origin\/ocr-joint-notice-of-violation-to-columbia\/index.html<\/a>.\u00a0<\/p>\n [23] \u201cTAX-EXEMPT ORGANIZATIONS: Better Compliance Indicators and Data, and More Collaboration with State Regulators Would Strengthen Oversight of Charitable Organizations,\u201d U.S. Government Accountability Office, https:\/\/www.gao.gov\/assets\/gao-15-164.pdf<\/a>.\u00a0<\/p>\n