The Internal Revenue Service is weighing whether to revoke Harvard’s tax exemption, according to three people familiar with the matter, as the Trump administration and Harvard remain locked in a dispute over demands that the university make changes to its hiring, admissions and curriculum policies.

President Trump has called publicly for the Ivy League university to pay taxes, and the administration cut $2.2 billion in federal funding after Harvard refused to submit to the administration’s pressure campaign.

Here’s a look at the tax-exempt status afforded to Harvard — as well as most universities, charities and churches — and why it matters:

Tax-exempt status allows an organization to forgo paying federal income and property taxes under Section 501(c)(3) of the Internal Revenue Code, which means that donations to the institution are tax-deductible. Eligible organizations include those whose purpose is “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition and preventing cruelty to children or animals,” according to the I.R.S.

The I.R.S. places a number of restrictions on any organization claiming tax-exempt status. None of its earnings can go to a private shareholder or individual, and the body “may not be an action organization.” This means that it cannot try to influence legislation, participate in a campaign or support a political candidate, according to the Internal Revenue Code.

Simply put, tax-exempt status saves money and can boost credibility. It can also help an educational institution become a magnet for wealthy individuals seeking to donate large sums. In Harvard’s case, the loss of tax-exempt status could cost the university billions of dollars.

Institutions must apply to the I.R.S. for tax exemption, and a vast majority of universities do so, according to the Association of American Universities. This is because of their educational purpose, which “the federal government has long recognized as fundamental to fostering the productive and civic capacities of citizens,” the association’s website says.

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