NAICU Washington Update

IRS Issues Guidance on Endowment Tax

July 02, 2019

The Internal Revenue Service (IRS) issued a Notice of Proposed Rulemaking (NPRM) containing proposed guidance on the new excise tax on the endowments of certain private, nonprofit colleges and universities.  This new tax was levied as part of the Tax Cuts and Jobs Act (TCJA), the tax reform bill signed into law in 2017.

TCJA imposed this new 1.4% excise tax on private college endowment investment returns, based on a formula of endowment assets of $500,000 per Full Time Equivalent (FTE) student. Using the most recent IPEDS data, this tax is likely to affect approximately 28 private, nonprofit colleges.  Public colleges were excluded from this new tax.

Because the new law is both unprecedented, in that it taxes one sector of the charitable and higher education communities, and it contains numerous undefined terms, it is nearly impossible for the affected institutions to assess its specific impact without further guidance from Treasury and/or the IRS.

Many of the colleges and universities that expected to be hit with this tax have been meeting with Treasury and IRS officials during the past year to advocate for the most effective interpretation of many different parts of the new law.  Each institution affected will have to examine the guidance and determine its usefulness in preparing for the tax assessment.

There will be a 90-day comment period on the NPRM.  It is likely the higher education community, as well as the affected institutions, will be submitting comments on the details of the proposal.  It’s currently unclear when final guidance will be issued and what the timeline for implementation will be.

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