Document Type

Article

Publication Date

2025

Abstract

In this installment of Reflections With Reuven Avi-Yonah, Avi-Yonah examines justifications for exempting Harvard University and other large nonprofits from tax and argues that treating those organizations like large C corporations would not be such a bad thing. The proposal to subject large university endowment investment income to the corporate tax rate of 21 percent instead of the current 1.4 percent rate has engendered significant debate. More recently, President Trump’s threat to strip Harvard University of its tax-exempt status and treat it as a taxable corporation has likewise been controversial. In their recent Tax Notes article, Harvey Dale, Daniel Hemel, and Jill Manny examine this threat and show that it is less drastic than some have supposed. They argue that because gifts are excluded from gross income under section 102, most of Harvard’s income will be tax free even if it lost its tax exemption, and its investment income most years is less than its operating expenses, meaning it would not have net taxable income. Harvard might still be subject to the corporate alternative minimum tax because it is based on book income and gifts are not excluded for book purposes, but there are ways to mitigate that. The authors explain that “if Harvard were treated as a taxable C corporation rather than an exempt organization, its own federal corporate income tax liability could be as little as zero.”

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Reprinted with the permission of Tax Analysts

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