Final Regulations on College and University Investment Income Tax Issued

• Published date: 01 December 2020
• Date: 01 December 2020
• DOI: http://doi.org/10.1002/npc.30795

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

FINAL REGULATIONS

ON COLLEGE

AND UNIVERSITY

INVESTMENT INCOME

TAX ISSUED

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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DOI:10.1002/npc

Analysis of current developments in tax

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Volume 37 Number 12

December 2020

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TIGTA Issues New Audit Plan 3

Association’s Job-Placement

Service Ruled Unrelated

Business, Income Not Royalties 4

Capital Investment Company

Ruled Ineligible for Charitable

Tax Exemption 4

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