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It appears that many of the country’s colleges and universities[i] believe they have not already contributed enough to the decline of American education and to the erosion of our society, generally.

These institutions of so-called higher learning are not satisfied with having introduced major studies in subjects that can only be described as laughable, diluted academic standards, misrepresented history, encouraged identity politics, adopted cancel culture, stifled free speech, vilified Judeo-Christian values, and demonized Western civilization.

All this while accepting federal funding, watching their endowments grow to obscene levels, and impoverishing students and their families with exorbitant tuition.[ii]   

Many of our universities now seem to have added support of genocide to their list of “accomplishments.” That is not to say that these delusionally self-proclaimed beacons of light in an otherwise benighted world have officially condoned the destruction of any nation or group.

However, their reluctance to condemn those bad actors on the international stage who espouse and encourage such ends, and their unwillingness to punish those poorly educated, coddled students and university-supported organizations that openly, forcefully, and sometimes violently call for the elimination of an entire nation constitutes a tacit acceptance, if not outright approval, of these students’ exhortations to commit a crime against humanity.[iii]

What’s next?

In response to the foregoing developments, the White House announced about a week ago that it would be unveiling new measures to combat hate-related activities on campuses across the nation.[iv]

I’d like to suggest another possibility, one that would strike at that which these universities hold dearest: the source of their wealth – specifically, their tax-exempt status.[v]

To appreciate the impact that the loss, or the threatened loss, of such status may have upon a university’s behavior,[vi] let’s take a moment to consider just a few of the economic benefits derived from such status.

At the same time, we’ll review how taxes have been used by the government to dissuade or punish other behavior.

Tax-Exempt Status

Organizations described in Section 501(c)(3) of the Code (broadly described under the common law as “charitable organizations”) – including universities – are generally exempt from federal income tax,[vii] not to mention state and local taxes. They are also eligible to receive tax deductible contributions from private individuals and businesses.[viii] 


The income derived by a tax-exempt university from an activity that is substantially related to its exempt purpose is not subject to federal income tax; for example, the organization’s revenue from tuition is not subject to federal income tax.

By the same token, the organization is taxed on its net income from an unrelated trade or business – one that is regularly carried on by the organization, but which is not substantially related to the exercise or performance by such organization of the charitable purpose or function constituting the basis for its exemption.[ix]

That said, the organization is exempt from income tax with respect to most of its investment income. Thus, interest, dividends, rents, royalties, and annuities are generally excluded from the unrelated business income of a tax-exempt university,[x] subject to an exception if such income is derived from property with respect to which there is acquisition indebtedness (“debt-financed property”; for example, debt incurred to purchase rental real property), in which case the amount of such investment income that is excluded from unrelated business income is reduced.[xi]

But even if the passive income comes from debt-financed real property, the income may be still excluded from unrelated business income if the organization is a “qualified organization” – i.e., “an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.”[xii] (Hmm. That sounds familiar.)

Based on the foregoing, it is clear that a university’s exemption from the imposition of income tax on most of its net income is of vital importance to the organization.


Likewise, the university’s tax status allows it to receive nontaxable gifts from members of the public in exchange for which such donors may claim a tax-favored deduction, within certain parameters, for purposes of determining their own tax liability. Moreover, because universities are classified as “public charities” for tax purposes,[xiii] their donors are generally allowed to claim an enhanced tax deduction for contributions of either money or other property.[xiv]

For example, an individual who makes a gift of money to a university may claim a deduction in respect of such gift of an amount up to 50 percent of the donor’s contribution base for the year of the gift. If the individual were to, instead, make an in-kind gift of unencumbered, appreciated property, such as real estate or securities, the individual would not be required to recognize as income the gain inherent in the property, plus they would be permitted to claim a deduction of an amount equal to the fair market value of such property, up to 30 percent of their contribution base for the year of the gift.

The foregoing donor-side tax benefits, which are attributable to a university’s status as a tax-exempt public charity, facilitate the university’s solicitation of significant gifts.

“Abuses” of Tax-Favored Status?

Over the years, members of the public, and many of their elected representatives, have sometimes questioned whether the benefits bestowed upon society in general by these tax-exempt institutions are commensurate with the revenues and tax benefits enjoyed by these institutions – benefits which are essentially subsidized by the general public.[xv]

Some in Congress who have compared (i) the economic benefits enjoyed by colleges by virtue of their exempt status with (ii) the community investment made by these institutions, have gone so far as to question whether their continuing tax-exempt status is justified.

Instead of tackling these issues head-on, Congress has, over the years, reacted to, and taken various half-measures to curtail, some of the practices (“abuses”?) in which a sufficient number[xvi] of exempt organizations, including universities, have engaged.

Excess Benefits. For example, in 1996, legislation was enacted to deter and punish the transfer of a so-called “excess economic benefit” from a public charity to a so-called “disqualified person.” This provision targeted the direct or indirect transfer by the charity of an amount that exceeds the value of the consideration (including the performance of services) received by the charity in exchange for providing such benefit.[xvii]

Executive Compensation. In 2017, a new 21 percent excise tax was added to the Code, which would be imposed on a public charity based on the amount by which the compensation paid to any of the charity’s five most highly compensated employees during the taxable year exceeded $1 million.[xviii]

Endowment Tax. That same year, a new tax was introduced with respect to certain private universities, equal to 1.4 percent of the college’s net investment income for a taxable year when the aggregate fair market value of the university’s investment assets at the end of such year is at least $500,000 per student.[xix] The institutions in questions squealed like stuck pigs. Candidate Biden assured them he would eliminate this unreasonable burden. Oh well.

Having reviewed some of the economic benefits bestowed upon tax-exempt universities, let’s now consider how they attain such tax-favored status.

Qualifying for Exemption

A charitable organization, such as a university, must be organized and operated exclusively for one or more of the exempt purposes specified in Section 501(c)(3). If an organization fails to meet either the organizational test or the operational test, it is not exempt.[xx]

An organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in Section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose.

If an organization has been recognized as tax-exempt by the IRS, it must engage in activities primarily in pursuit of the tax-exempt purposes constituting the basis for its tax exemption if it hopes to retain such status.

An organization is not treated as organized or operated exclusively for one or more of exempt purposes unless it serves a public rather than a private interest. To meet this requirement, it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests or persons controlled, directly or indirectly, by such private interests.[xxi]

Public Policy

In addition to the foregoing statutory and regulatory requirements, there is another, judicially created test, the satisfaction of which is all too often taken for granted.

This test is implicit in the common law concept of what is “charitable”; indeed, it is a corollary to the public benefit principle upon which many of the benefits granted to charitable organizations are predicated.

Specifically, the purpose and activities of a charitable organization must not be so contrary to an established public policy as to undermine any public benefit that might otherwise be conferred. 

According to the U.S. Supreme Court, the IRS must determine whether there is a public policy against a particular activity conducted by the university in question. Next, the agency has to ascertain whether that public policy is so fundamental as to require the denial or revocation of the exempt status of an organization participating in that activity.[xxii]

For example, the Court has found that racial discrimination in education is contrary to settled public policy. The fact that an organization fulfills a legitimate educational function cannot be isolated from its discriminatory practices.

Thus, in the case of a university that has already been granted exempt status, the IRS has the responsibility to review the organization’s later activities for the purpose of determining whether a given set of activities “so violate public policy that the organization cannot be deemed to provide a public benefit worthy of ‘charitable’ status.”


In 1948, the U.S. signed the Convention on the Prevention and Punishment of the Crime of Genocide.[xxiii]

The Elie Wiesel Genocide and Atrocities Prevention Act of 2018[xxiv] states that atrocity prevention is in the U.S. national interest, and calls for the U.S. to pursue a “government-wide strategy to identify, prevent, and respond to the risk of atrocities.”

Last year, the President stated, “I recommit to the simple truth that preventing future genocides remains both our moral duty and a matter of national and global importance…. When hatred goes unchecked, and when the checks and balances in government and society that protect fundamental freedoms are lost, violence and mass atrocities can result.”[xxv]

The foregoing demonstrates that the prevention of genocide is settled public policy in this country.

Attribution of Activity

Let’s start off by dismissing any argument that these activities are protected by the First Amendment as the exercise of free speech on a university campus.

The offensive and inflammatory language, placards and other props that are being used to incite violence – good God, the elimination of an entire people – are not what the Founders[xxvi] had in mind nor what the courts have allowed since. 

Having established what should be obvious,[xxvii] how should the recent student protests on campuses across the country be interpreted?

Should the activities of these students and professors be attributed to their universities, resulting in the conclusion that the organizations are engaging in activities that are contrary to settled public policy?

They are being conducted on university property, with the participation of professors and students, none of whom has made any statement even remotely resembling the renunciation of any affiliation with or attribution to the university.

Moreover, when university officials subsequently addressed the protests –  generally in response to the threat of losing contributions from wealthy alums – many of them decried the circumstances generally without publicly condemning either the activities of their students and faculty members or the events that sparked the campus protests.

What is to be Done?[xxviii]

As stated earlier, charitable organizations must serve a public purpose and must not act contrary to established public policy.

Such an organization’s tax exemption is intended to be beneficial to society as a whole. Indeed, the exemption is based on the theory that society is “compensated” for the loss of tax revenues by the public benefits resulting from these organizations’ promotion of the general welfare.

Similarly, the tax-favored treatment of contributions made to such charitable organizations is founded on the principle that the public is both an indirect donor and a beneficiary of such contributions.

Based on the foregoing, I believe there is a more than colorable argument that many of the universities in question may have jeopardized their tax-exempt status by virtue of the pro-genocide messages emanating from their campuses. All that remains is the IRS’s political will to act.

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The opinions expressed herein are solely those of the author(s) and do not necessarily represent the views of the Firm.

[i] For purposes of this post, references to “universities” will include colleges.

[ii] Our President – or whoever it is that directs him – has tried his darndest to buy the votes of students and former students by cancelling their educational loans but to-date the courts have blocked those efforts.

[iii] According to Elie Wiesel, “Silence encourages the tormentor.” 

[iv] How will the Administration reconcile its moral duty to do what’s right with its selfish desire to avoid alienating certain voters? The latest polls in swing states have not been kind.

[v] Ah, the almighty dollar. How quickly did those Harvard students abandon their “principles” when corporate America suggested they would not be hiring these students on account of their hateful speech and actions? “I never approved the letter.”

Many significant donors to these schools have also raised the specter of withholding further financial support until the schools addressed these issues. Let’s see how quickly they respond. It is unfortunate that such institutions – for which I once had the greatest respect – have to be threatened with economic harm before they “realize” the error of their ways.   

[vi] Taxes are a powerful tool for modifying behavior.

[vii] IRC Sec. 501(a).

[viii] IRC Sec. 170, Sec. 2055, and Sec. 2522.

They also have access to tax-exempt financing through State and local governments that may issue tax-exempt bonds to finance the activities of charitable organizations described in IRC Sec. 501(c)(3). Because interest income on tax-exempt bonds is excluded from gross income, investors generally are willing to accept a lower pre-tax rate of return on such bonds than they might otherwise accept on a taxable investment. This, in turn, lowers the cost of capital for the users of such financing. 

[ix] IRC Sec. 511; Sec. 513; Reg. Sec. 1.513-1. The contortions by which certain revenues are found to be “related” are quite impressive. Just look at the monies flowing from contracts for broadcasting rights for college football.

[x] IRC Sec. 512(b).

[xi] IRC Sec. 514.

[xii] IRC Sec. 514(c)(9)(A); IRC Sec. 514(c)(9)(C); IRC Sec. 170(b)(1)(A)(ii).

However, the IRS has issued regulations that include two additional requirements for “qualified organization” status that do not appear in the Code. Specifically, the organization’s “primary function is the presentation of formal instruction and it normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. . . . It does not include organizations engaged in both educational and noneducational  activities unless the latter are merely incidental to the educational activities.” Reg. Sec. 1.170A-9(c).

[xiii] An organization qualifying for tax-exempt status under Section 501(c)(3) of the Code is classified as either a public charity or a private foundation. An organization may qualify as a public charity in one of several ways. The Code does not expressly define the term ‘‘public charity,’’ but rather provides exceptions to those entities that are treated as private foundations. IRC Sec. 509.

Certain organizations are treated as public charities per se. These include an “educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on”; i.e., colleges and universities. Sec. 509(a)(1) (referring to sections 170(b)(1)(A)(i) through (iv) for a description of these organizations); see in particular IRC Sec. 170(b)(1)(A)(ii).

[xiv] “Enhanced” in the sense that a donor to a private foundation is entitled to a lesser benefit by comparison.

[xv] Hospitals have long been a subject of this inquiry.

[xvi] “Sufficient” in that they caught the attention of some of the press and of certain Senators.

[xvii] IRC Sec. 4958. Pub. L. 104-168.

[xviii] IRC Serc. 4960. Pub. L. 115-97. Net investment income is determined using rules similar to the rules of IRC Sec. 4940(c) (relating to the net investment income of a private foundation).

[xix] IRC Sec. 4968. Pub. L. 115-97. Coaches – don’t get me started.

[xx] Reg. Sec. 1.501(c)(3)-1(a).

In addition, no substantial part of the activities of the organization may be carrying on propaganda, or otherwise attempting, to influence legislation (with a limited exception), and it must not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

[xxi] Private inurement.

[xxii] Bob Jones University v. United States, 461 US 574 (1983). Although Bob Jones involved racial discrimination, the IRS seems to have extended the decision’s reasoning; see, for example, TAM 8910001:

“To warrant exemption under section 501(c)(3), an institution must fall within a category classified in that section and must demonstrably serve and be in harmony with the public interest. The institution’s purpose must not be so at odds with the common community conscience as to undermine any public benefit that might otherwise be conferred.”   

Thus, if an activity violates a clear public policy, the organization should be denied tax-exemption.

[xxiii] However, the treaty was not ratified until 1988, and then only with certain reservations.

[xxiv] Pub. .L. 115-441.

[xxv] .

[xxvi] Yep, those dead white male “oppressors” without whose wisdom, foresight and courage, the liberal ideals that are being abused by students and universities today may have never been realized.

[xxvii] Events of recent years, and especially of recent weeks, have caused me – and I daresay many of you – to question my/our beliefs or assumptions about our society.

[xxviii] Don’t worry, I’m not quoting Lenin. I have others in mind here.