President Donald Trump is threatening to revoke Harvard University’s tax-exempt status after the institution declined to comply with certain federal demands related to viewpoint diversity and Diversity, Equity, and Inclusion programming. The White House followed up by freezing over $2.2 billion in federal grants and $60 million in contracts tied to the university.
This challenge of Harvard’s tax-exempt status is not just a Harvard issue, it’s a nonprofit sector issue.
What Is Tax-Exempt Status and Why Does It Matter?
First, a quick primer for the uninitiated.
In the U.S., most nonprofits operate under IRS code Section 501(c)(3). This classification means:
- The organization is exempt from paying federal income tax
- Donations to the organization are tax-deductible for donors
- The organization must serve a public good—education, charity, religion, science, etc.
- The organization cannot directly engage in political campaigning
This legal and financial status is what distinguishes a true nonprofit from a for-profit business or a political action group. It’s also what gives nonprofits access to everything from public grants to reduced postal rates.
For Harvard, that means they don’t pay taxes on their investment income (which is substantial), and donors can write off gifts. But the same legal framework applies to the youth arts center in your neighborhood, the local food pantry, and the after-school STEM program down the street.
The Standoff with Trump
The controversy stems from federal demands issued to several universities, including Harvard and Columbia, that pushed for:
- Reductions in or elimination of DEI (diversity, equity, and inclusion) programs
- Evidence of “viewpoint diversity” in course content and faculty hiring
- Audits of federal funding to ensure neutrality and alignment with “public interest”
Harvard declined to comply, and the administration responded by freezing grant funding and suggesting the university’s nonprofit status was no longer appropriate.
It’s important to note: The president cannot directly revoke tax-exempt status. That’s a job for the IRS, though executive influence and legislative maneuvering can have major impact.How Far Could This Go? If institutions are punished for DEI programs or for not amplifying certain viewpoints, we may be crossing from accountability into ideological enforcement.
This has huge implications for nonprofits:
- Will reproductive health orgs be targeted next?
- Will LGBTQ+ support groups lose protection?
- Could environmental nonprofits face scrutiny under a climate-skeptical administration?
The Lesson for Everyday Nonprofits
Whether you agree with the administration or not, this is a teaching moment for all of us in the nonprofit world. Here’s what small and midsize organizations can take away:
1. Your Status Is Not a Guarantee
The Harvard situation reminds us that nonprofit status isn’t permanent or invincible.
No matter your size, make sure:
- Your mission is well-documented
- Your finances are clean and clear
- Your programming aligns with your stated purpose
2. Compliance Doesn’t Mean Silence
You can advocate for change. You can speak up for justice. You can design bold, inclusive programs.
But know where the line is:
- You can educate the public on issues.
- You cannot endorse or oppose political candidates.
- You should track how your messaging and programming may be perceived, especially in charged political climates.
3. If You Want to Push Boundaries, Do It Strategically
Some nonprofits are willing to challenge the status quo—and that’s necessary. Many of the biggest breakthroughs in civil rights, education, and healthcare came from nonprofits that refused to play it safe.
If your mission involves challenging norms or promoting progressive ideas:
- Document everything
- Lean into transparency
- Partner with advocacy organizations that understand the legal landscape
And make peace with the risk. Bravery sometimes requires boldness—and backup.
4. Reinforce Internal Structures
This is a great time to do a mini self-audit:
- Are your bylaws clear and current?
- Do you conduct regular board meetings with proper documentation?
- Are your advocacy activities well within IRS guidelines?
- Are your marketing materials balanced and appropriate?
Proactive checks now save you from major headaches later.
Final Thoughts: The Big Picture
At The Good Pixel, we exist to help nonprofits not just survive—but thrive. That means understanding the rules, yes—but also knowing how and when to challenge them. Embrace this moment as an opportunity to make sure everything is buttoned up and remain rooted in your missions.
