When Tax Exempt Status is at Stake: Lessons from Harvard for Tax Exempt Public Charities

In April 2025, the U.S. Department of Education initiated a review of Harvard University’s IRC Section 501(c)(3) tax exempt and IRC Section 509 public charity status, citing concerns related to institutional governance, admissions practices, and diversity, equity, and inclusion (DEI) policies. The review also followed reports of antisemitism on campus and potential civil rights violations, prompting a temporary freeze on more than $2 billion in federal research funding.

A tax exempt designation provides key benefits to not-for-profit public charity organizations, including exemption from federal and certain state and local taxes, eligibility for public and private grants, and the ability to receive tax-deductible donations. The designation also conveys public trust, offers limited liability protections, and supports long-term organizational continuity. While the U.S. Department of Education cannot directly revoke tax exempt status, the Internal Revenue Service has independent authority to do so if an organization is found to be in violation of public policy or legal requirements.

For not-for-profits to safeguard their tax exempt public charity status, they must follow several guidelines that require consistency, care, and compliance:

• File Form 990 annually. Ensure that your organization’s IRS Form 990 is filed timely and accurately each year. Failure to miss filings for three consecutive years will lead to automatic revocation of tax exempt status.
• Align activities with mission. For good measure, regularly review programs and services to confirm they directly support the organization’s stated mission. Cautiously watch for “mission creep” and carefully evaluate unrelated business activities or opportunities.
• Maintain transparency and good governance. Be sure to keep detailed and up-to-date financial records, including income, expenses, and funding sources. Also, don’t forget to document board meeting minutes and retain them for audit or compliance reviews. A not-for-profit organization should maintain thorough records of compliance-related actions and policies (e.g. conflict of interest, whistleblower, etc.).
• Avoid political campaign activity. Do not participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office. Additionally, avoid any form of endorsement, financial contribution, or public statements that may be interpreted as campaign involvement.
• Limit lobbying activities. Ensure that lobbying does not constitute a “substantial part” of the organization’s overall activities. If engaging in lobbying, consider filing Form 5768 to elect the 501(h) expenditure test, which provides clearer guidelines and limits on lobbying expenditures.

For not-for-profit leaders, understanding Harvard’s situation is more than a cautionary tale. Here are a few areas where being proactive and transparent can ensure stability and longevity:

• Conduct regular internal reviews. Schedule periodic self-audits of operations, governance practices, and IRS/state filings. Not-for-profit leaders should use these reviews to proactively identify and correct potential compliance issues before they escalate.
• Strengthen board engagement and oversight. This is a common problem in most not-for-profit organizations. Keep your board of directors well informed and actively involved in oversight responsibilities. Also, encourage board participation in policy review, strategic planning, and compliance monitoring.
• Implement and enforce conflict-of-interest policies. Every not-for-profit should develop clear, written conflict-of-interest policies applicable to both board members and staff. Not-for-profit leaders should require annual disclosures and regular training on recognizing and addressing potential conflicts.
• Educate your board and staff. Provide regular training on not-for-profit compliance, fiduciary duties, and 501(c)3 requirements. Ensure leadership and staff understand how day-to-day actions impact the organization’s tax exempt status.
• Engage not-for-profit specialists periodically. Consult not-for-profit legal and tax experts to stay informed about evolving regulations, IRS guidance, and best practices.

Ultimately, preserving your organization’s tax exempt public charity status is about more than regulatory adherence. It’s about protecting the integrity of your mission and the trust of those you serve. Harvard’s current legal battle and overall status situation serves as a timely reminder that maintaining not-for-profit status demands vigilance and integrity. As public expectations evolve and regulatory scrutiny increases, staying mission-aligned and legally compliant is not just a best practice. It’s vital.