Donald Trump ordered the top lawyer at the IRS to revoke Harvard's status as a tax-exempt organization. If that were to stick, it would be a much bigger hit than even losing federal funds. It would probably destroy the university. Then he could use the same gambit to destroy every university in the country that did not agree to his every demand—for example, letting his administration appoint half the professors in every department, to make sure that conservatives are well represented, regardless of their qualifications.
Federal law allows charitable, religious and educational organizations to avoid federal (and state) taxes as long as they do not engage in political activity. In court, Trump is likely to claim that student demonstrations, which the courts have generally held as protected First Amendment speech, are political activity.
Elon and the Muskrats are busy downsizing the IRS and Trump has replaced much of the leadership, so there is turmoil at the agency, right at the busiest time of the year. Whether the new leadership will follow through is not known, since the order arrived late yesterday. Needless to say, if the exemption is pulled, Harvard will fight to the death on this. Or try. What if they attempt to hire one of the top law firms and the Trump administration orders that firm to oppose Harvard, as part of its indentured servitude? What will the law firm do? Will Harvard be able to even find an outside lawyer? Of course, in a pinch, a group of professors from the Harvard Law School could do the job, but even a law school with a lot of famous lawyers might prefer outside counsel with a lot more actual courtroom experience than they have.
With Trump trying to crush the law firms, the universities, the media, and the judiciary into submission, we are already in an authoritarian state. This may not end well. The best-case scenario is that the economy really tanks (see below) and the voters get angry enough that the Republicans in Congress start looking to see where they have misplaced their spines. (V)