Final Regulations on College and University Investment Income Tax Issued

Published date01 December 2020
Date01 December 2020
The Department of the Treasury and the IRS, on September 18, issued final
regulations concerning the excise tax applicable to the net investment income of
certain private colleges and universities (IRC § 4968; T.D. 9917). These regulations
in their proposed form are summarized in the September 2019 issue.
Statutory Background
The federal tax law imposes a 1.4 percent excise tax on the net investment
income of applicable educational institutions (IRC § 4968(a); Reg. § 53.4968-
1(a)). An applicable educational institution is an eligible educational institution (as
defined in IRC § 25A(f)(2)) that had at least 500 tuition-paying students during
the preceding tax year, more than 50 percent of whom are located in the United
States; that is not a state college or university; and the fair market value of the
assets of which at the end of the preceding tax year (other than those that are
used directly in carrying out the institution’s exempt purpose) is at least $500,000
per student (IRC § 4968(b)(1); Reg. § 53.4968-1(b)(1)).
The number of students of an institution (including for purposes of determin-
ing the number of students at a particular location) must be based on the daily
average number of full-time students attending the institution (with part-time
students taken into account on a full-time student equivalent basis (IRC § 4968(b)
(2)). Net investment income is determined in accordance with rules similar to
those in the private foundation context (IRC § 4940(c); IRC § 4968(c)). The assets
and net investment income of related organizations generally are treated as the
assets and net investment income of the educational institution (IRC § 4968(d)(1)).
The statute does not define the terms student, tuition-paying student, or
similar to. It does not define the term control as it relates to the definition of a
related organization with respect to an educational institution. These final reg-
ulations provide general definitional guidance with respect to these and other © 2020 Wiley Periodicals LLC
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Analysis of current developments in tax
and related law for nonprofit organiza-
tions and their professional advisors.
Volume 37 Number 12
December 2020
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TIGTA Issues New Audit Plan 3
Association’s Job-Placement
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Business, Income Not Royalties 4
Capital Investment Company
Ruled Ineligible for Charitable
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Foundation Given Additional
Five Years to Sidestep Holdings
Penalties 5
Syndicated Conservation
Easements Update 5
Final ABLE Programs Regulations
Issued 5
Nonprofit Organizations and the
Concept of Ownership 7
Other Recent IRS Private Letter
Rulings 7
Other Development 8

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