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Senate Tax Writers Considering Limits on Tuition Remission, UBIT on Hedge Fund Investments

May 30, 2007

As it prepares to mark up a bill to expand federal education tax benefits, the Senate Finance Committee is considering a number of tax increases that could adversely impact colleges and universities.  Finance Committee Chair Max Baucus (D-MT) is exploring ways to make the Hope and Lifetime Learning tax credits available to more lower-income students, whose taxable income is too low to enable them to take advantage of the credits, which are nonrefundable. 

Under current "pay-as-you-go" budget rules, revenues required to pay for the expansion of the Hope and Lifetime Learning tax credits must be offset elsewhere in the tax code.  

Thus far, no formal proposals have been drafted.  However, in recent  weeks there has been a great deal of discussion and speculation related to potential revenue raisers, including: 

  • a limitation on the tax-free tuition benefits that colleges provide to employees, spouses, and dependents; 
  • a proposal to subject exempt organizations' off-shore investments to unrelated business income tax;  
  • a requirement for institutions to spend 5 percent of endowment, similar to what is required for private foundations; and
  • a punitive measure that would cap tax-exempt bond volumes for institutions, if tuition increases exceed a yet-to-be-determined limit.

 The Senate Finance Committee could address these issues as early as the week of June 4. 

NACUBO is following these developments closely and working with association colleagues to respond strategically to these issues with committee staff.