Proposed Regulations on Endowment Tax

On June 28, 2019, the IRS and Treasury issued proposed regulations clarifying the application of the excise tax on certain private universities under Section 4968 of the tax code.

Very generally, Section 4968 imposes a 1.4% excise tax on the net investment income of private colleges and universities that have:

  • more than 500 full-time tuition-paying equivalent students, of which more than 50% are located in the United States; and
  • assets (excluding assets used directly in carrying out the educational institution’s exempt purpose) of at least $500,000 per full-time equivalent student.

For this purpose, assets generally include assets of related organizations, unless those assets are not intended or available for the use or benefit of the college or university.

The excise tax is initially expected to apply to 25 to 30 institutions.

 

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