Proposed Regulations on College Investment Income Excise Tax Issued

• DOI: http://doi.org/10.1002/npc.30631
• Date: 01 September 2019
• Published date: 01 September 2019

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

PROPOSED

REGULATIONS ON

COLLEGE INVESTMENT

INCOME EXCISE TAX

ISSUED

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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DOI:10.1002/npc

Analysis of current developments in tax

and related law for nonprofit organiza-

tions and their professional advisors.

Volume 36 Number 9

September 2019

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IRS Modernization Act

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A Look at Lawsuit Filed

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Progress! IRS Applies Unrelated

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Other Recent IRS Private

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Supreme Court Corner 7

Charitable Giving Corner 8

National Taxpayer Advocate

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