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NACUBO has continued to voice strong opposition to the endowment excise tax and has assisted a coalition of colleges and universities in doing the same.

NACUBO recently submitted a comment letter, endorsed by 10 other higher education associations, on the July 3 Notice of Proposed Rulemaking (NPRM) with implementation regulations from the IRS and Department of the Treasury for the new 1.4 percent excise tax on the net investment income (NII) of certain private institutions enacted as part of the Tax Cuts and Jobs Act of 2017.

The excise tax is imposed on private institutions with at least 500 tuition-paying students during the preceding taxable year, more than 50 percent of whom are located in the United States, and the aggregate fair market value (FMV) of the assets of at least $500,000 per student.

In addition to voicing NACUBO’s continued opposition to the tax, which will only result in diminished charitable resources available for student financial aid, research, academic support, and public service, the letter focuses on a handful of broad issues addressed in the NPRM.

The proposed regulations heavily rely—without nuance—on the application of existing rules governing private foundations for the definition of exempt assets and for determining the amount of cash on hand that the institution may exclude from income in calculating the tax, for example.

NACUBO makes the following recommendations to policymakers:

  • Do not treat colleges and universities identically, rather than similarly, to private foundations for purposes of implementing rules related to the new excise tax.
  • Exclude income derived from institutional student loans in the calculation of NII.
  • Exclude housing payments from “rents” treated as NII.
  • Remove the proposed setting 1.5 percent safe harbor as a benchmark for cash that an institution may exclude from its non-charitable use assets in determining whether it is subject to tax. Instead, permit institutions to make a determination of their reasonable cash needs.
  • Remove proposals requiring institutions to gather basis information from donors of gifts of appreciated property as well as from partnerships.

Institutions Subject to the Tax Respond

A coalition of institutions subject to the tax (or who expect to be in the future) also submitted an expansive comment letter to the Treasury and the IRS with detailed analysis and comprehensive recommendations in response to the July 3 NPRM. NACUBO’s policy team worked closely with the stakeholders involved to convene and coordinate experts on higher education tax policy, investment, and operating practices.

The coalition’s letter includes several detailed proposals, including the following recommendations for the Treasury and IRS:

  • Use a broader definition of “student” than initially proposed.
  • Income from core educational and research activities should not be treated as NII.
  • Loss carryovers should be allowed in calculating NII.
  • In calculating NII, institutions should be permitted to exclude appreciation in a gift of donated property that occurred prior to the donation.
  • Institutions should be able to use any reasonable method to reflect reporting gain following application of the partnership step-up rule, without being required to obtain documentation from the partnership.
  • Institutions should not be required to take into account the NII of a related organization that is a taxable corporation.
  • Final regulations should include a special rule for related organizations over which the institution lacks effective control.

Final regulations are not expected until late 2019 at the earliest. NACUBO will continue to closely track and report on the publication of the final rules.


Liz Clark

Vice President, Policy and Research



Mary Bachinger

Director, Tax Policy


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