For greater than a century, nearly all of schools and universities haven’t paid most taxes. The Income Act of 1909 excused nonprofits working “completely for non secular, charitable, or academic functions” so as to proceed appearing within the public curiosity.
President Donald Trump is trying to problem that designation, complaining that faculties and universities are “indoctrinating” their college students with “radical left” concepts, slightly than educating them. And he has determined to start out with the 488-year outdated Harvard College, one of many world’s most prestigious establishments of studying and the primary faculty based within the American colonies.
On Tuesday, he focused Harvard College in a submit on his social media website, questioning whether or not it ought to stay tax-exempt “if it retains pushing political, ideological, and terrorist impressed/supporting “Illness?” Bear in mind, Tax Exempt Standing is completely contingent on appearing within the PUBLIC INTEREST!”
Tax-exempt standing, which is set by the Inside Income Service, signifies that these establishments don’t pay sure sorts of taxes and that their donors obtain a tax deduction after they make items. The foundations they must observe to keep up that standing are set out within the tax code. We spoke with attorneys who concentrate on nonprofit legislation and freedom of speech to attempt to reply questions on this problem.
Does a college’s curriculum have an effect on its charitable standing?
Usually, no. Schools and universities have broad leeway to design the training they supply.
Genevieve Lakier, a First Modification scholar on the College of Chicago Legislation Faculty, mentioned the U.S. Supreme Court docket has laid out 4 important freedoms for schools and universities — what to show, how you can educate it, who their college students are and who their professors are.
“That’s the irreducible core of educational freedom and it’s constitutionally protected on this nation,” she mentioned, including the federal government can’t threaten funding cuts or revoking a faculty’s tax standing as punishment for its views or what the varsity teaches.
The First Modification additionally protects the rights of different nonprofits to pursue their charitable missions underneath freedom of meeting, Lakier mentioned, even when these missions are odious or the federal government doesn’t like them.
Can the president ask the IRS to revoke a nonprofit’s tax-exempt standing?
No, he isn’t alleged to, based on two nonprofit tax attorneys who wrote a few earlier name from Trump to revoke the nonprofit standing of schools and universities.
In 1998, Congress handed a legislation that forbade federal officers from telling the IRS to analyze any taxpayer in an effort to extend belief in tax enforcement.
The attorneys, Ellen Aprill and Samuel Brunson, additionally pointed to laws that forbade the IRS “from focusing on people and organizations for ideological causes,” after an issue over the way it handled Tea Social gathering teams in 2013.
How does a nonprofit get and maintain its tax-exempt standing?
The IRS acknowledges a number of causes for a nonprofit to to be exempt from paying many sorts of taxes, together with pursuing charitable, non secular or academic missions amongst many different examples. The statute particularly names sports activities competitions, stopping cruelty to youngsters or animals and defending human or civil rights as exempt functions.
Nonprofits can lose their tax-exempt standing for issues like improperly paying its administrators, endorsing a politician or working a enterprise unrelated to its charitable mission.
In brief, tax attorneys say nonprofits should function “completely for charitable functions,” which is a distinct customary than what the president known as, “appearing within the public curiosity.”
Phil Hackney, a legislation professor on the College of Pittsburgh, mentioned, “Lengthy historical past and precedent counsel that Harvard and establishments of upper training are working for academic functions, that are thought of charitable,” underneath the tax code.
He mentioned it might be exceedingly tough to make a case {that a} faculty or college was not working for charitable functions underneath present legislation. Nevertheless, Edward McCaffery, who teaches tax coverage on the College of Southern California Gould Faculty of Legislation, warned there may be precedent for the IRS revoking the tax-exempt standing of schools that the federal government might lean on.
“I feel to dismiss it out of hand as over-the-top bluster and that the administration has no energy to unilaterally pursue it, I feel that’s naive,” McCaffery mentioned. “This might occur.”
Has the IRS ever stripped a school of its tax-exempt standing earlier than?
Sure. In 1983, the Supreme Court docket upheld a decrease courtroom resolution that the IRS might deny tax-exempt standing to Bob Jones College, a personal Christian college that banned interracial courting and marriage on campus, and Goldsboro Christian Faculties, which employed racially discriminatory admissions insurance policies.
The courtroom discovered the IRS had some discretion to find out whether or not a corporation searching for tax-exempt standing met requirements of “charity,” that means that it “should serve a public goal and never be opposite to established public coverage.”
Nonetheless, McCaffery mentioned, “The power of the IRS simply to come back in and deny tax exemption, it higher be a really clear, long-standing, deeply held public coverage, and never political preferences for sure sorts of positions, attitudes and voting patterns.”
How can the IRS revoke a nonprofit’s tax-exempt standing?
Often, the IRS would open an audit, the place it gathers proof {that a} nonprofit just isn’t working completely for charitable functions.
“The IRS must ship to Harvard a proposed revocation of its standing,” Hackney mentioned. “At that time, Harvard would have many various means to speak with the IRS about why they believed they have been inside the legislation,” together with suing.
Nevertheless, Hackney mentioned the U.S. Division of Treasury might implement new rules, for instance, stating that working a variety, fairness and inclusion program just isn’t in step with charitable functions. Such a change would often take years to make and would run counter to a long time of precedent, Hackney mentioned.
“I’m skeptical this effort can be profitable,” he mentioned. “If it have been, this is able to be probably the most dramatic change of charitable legislation in my lifetime and I might say within the historical past of our charitable legislation.”
This story was initially featured on Fortune.com
