Proposed Regulations on College Investment Income Excise Tax Issued

Date01 September 2019
Published date01 September 2019
The Department of the Treasury and IRS, on June 28, issued proposed
regulations concerning the excise tax applicable to the net investment income of
certain private colleges and universities (IRC § 4968) (REG-106877-18). This tax
provision was added by the Tax Cuts and Jobs Act (summarized in the February
2018 issue).
The proposed regulations make use of several existing statutory and regula-
tory provisions in defining or expanding on the definition of many terms used in
connection with this excise tax provision.
This tax is imposed on applicable educational institutions. The proposed
regulations follow the statute in requiring that these institutions be described in
IRC § 25A(f)(2) and its accompanying regulations. The term student is generally
defined by application of IRC § 25A(b)(3)(A). Students must be both enrolled at
and attending the institution.
The proposed regulations provide that tuition-paying means payment of tuition
and fees required for enrollment or attendance of a student for courses of instruc-
tion at an educational institution but does not include payments for supplies or
equipment, room and board, and other personal living expenses. A student is con-
sidered located in the United States if the student resided in the United States for
at least a portion of the time attending the institution. Determinations of full-time
students, part-time students, full-time student equivalents, and daily average of
students attending the institution are to be based on institutions’ general practices.
In determining what assets are used directly in carrying out an institution’s
exempt purposes, the proposed regulations generally track comparable rules in
the private foundation context (IRC § 4942). Likewise, the definition of gross
investment income is proposed to be essentially the same as in the foundation set-
ting (IRC § 4940). The matter of basis in property was discussed in Notice 2018-55
(summarized in the August 2018 issue). © 2019 Wiley Periodicals, Inc.
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Analysis of current developments in tax
and related law for nonprofit organiza-
tions and their professional advisors.
Volume 36 Number 9
September 2019
Also in This issue...
IRS Modernization Act
Becomes Law 2
Final Regulations Issued
Concerning Social Welfare
Organizations’ Notice
Requirement 3
Final Regulations Issued
Concerning Charitable
Deductions and Salt Cap 3
Charitable Giving Declined
in 2018 5
A Look at Lawsuit Filed
Against Fidelity Charitable 5
Progress! IRS Applies Unrelated
Business Law Rather Than
Commerciality Doctrine (Twice) 6
Other Recent IRS Private
Letter Rulings 6
Supreme Court Corner 7
Charitable Giving Corner 8
National Taxpayer Advocate
Still Unhappy With Recognition
Process 8

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