Harvard University is tax-exempt primarily because it is classified as a nonprofit educational institution under Section 501(c)(3) of the Internal Revenue Code. This status exempts it from federal income tax and often from state and local property taxes as well. The tax exemption exists because Harvard serves charitable purposes related to education, research, and public service, which qualifies it under IRS rules for nonprofits. Additionally, donors to Harvard receive tax deductions on their contributions, which encourages philanthropy to support its mission. Harvard's tax-exempt status allows it to avoid paying taxes on its substantial endowment income and property, saving billions annually. However, this status comes with restrictions, such as prohibiting private profit distribution and limiting political activities. Recently, there have been political pressures and discussions about revoking Harvard's tax-exempt status, but such a move would require a legal process proving violations of IRS rules. In summary, Harvard is tax-exempt because it is a nonprofit educational institution serving public educational and charitable purposes under the law, which exempts it from many taxes and encourages donations through tax deductions.