Modification of Excise Tax on Investment Income of Certain Private Colleges and Universities
Section 70415 · Sec. 70415 ·
What this chapter is about
This part rewrites a tax on the investment income of private colleges. The rate is 1.4, 4 or 8 percent depending on endowment per student. Only schools with 3,000 or more paying students are reached. Student loan interest and some royalties now count as investment income.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70415 in the PDF
What the document says
“There is hereby imposed on each applicable educational institution for the taxable year a tax equal to the applicable percentage of the net investment income of such institution for the taxable year.”
The section rewrites section 4968 of the Internal Revenue Code of 1986 to impose on each applicable educational institution a tax for the taxable year equal to the applicable percentage of its net investment income for that year.
What the document actually says
“There is hereby imposed on each applicable educational institution for the taxable year a tax equal to the applicable percentage of the net investment income of such institution for the taxable year.”
That sentence, in plain words
A tax is laid on each school that qualifies. It is worked out on the school's investment income. A rate is applied to that income.
What this is about
The rate is set by the next rule. Net investment income means gains and returns on the endowment. Only some schools are reached.
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“8 percent in the case of an institution with a student adjusted endowment in excess of $2,000,000.”
The section sets the applicable percentage at 1.4 percent for an institution with a student adjusted endowment of at least $500,000 and no more than $750,000, 4 percent for one above $750,000 and no more than $2,000,000, and 8 percent for one above $2,000,000.
What the document actually says
“8 percent in the case of an institution with a student adjusted endowment in excess of $2,000,000.”
That sentence, in plain words
The rate is 8 percent for the largest group. Those are schools with more than $2 million of endowment per student.
What this is about
The lowest band pays 1.4 percent. The middle band pays 4 percent. The bands turn on endowment for each student.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
“which had at least 3,000 tuition-paying students during the preceding taxable year,”
The section defines an applicable educational institution as an eligible educational institution as defined in section 25A(f)(2) that had at least 3,000 tuition-paying students in the preceding taxable year, has more than 50 percent of those students in the United States, has a student adjusted endowment of at least $500,000, and is not a State college or university described in the first sentence of section 511(a)(2)(B).
What the document actually says
“which had at least 3,000 tuition-paying students during the preceding taxable year,”
That sentence, in plain words
The school must have had at least 3,000 paying students. That is counted for the year before.
What this is about
More than half of them must be in the United States. The endowment per student must reach $500,000. State schools are left out.
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“the aggregate fair market value of the assets of such institution (determined as of the end of the preceding taxable year), other than those assets which are used directly in carrying out the institution's exempt purpose, divided by”
The section defines the student adjusted endowment as the total fair market value of the institution's assets at the end of the preceding taxable year, other than assets used directly in carrying out its exempt purpose, divided by the number of students. The number of students is the daily average of full-time students, with part-time students counted on a full-time equivalent basis.
What the document actually says
“the aggregate fair market value of the assets of such institution (determined as of the end of the preceding taxable year), other than those assets which are used directly in carrying out the institution's exempt purpose, divided by”
That sentence, in plain words
Take the value of all the school's assets. Leave out those used directly for its own work. Value them at the end of the year before.
What this is about
That figure is then divided by the number of students. Students are counted as a daily average. Part-time students count as a fraction.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70415 in the PDF
What the document says
“Net investment income shall be determined by taking into account any interest income from a student loan made by the applicable educational institution (or any related organization) as gross investment income.”
The section works out net investment income under rules similar to section 4940(c) of the Internal Revenue Code of 1986, but counts as gross investment income interest from a student loan made by the institution or a related organization, and federally subsidized royalty income. That means royalty income that would otherwise be left out because it came from work by students or faculty, where federal funds went into the research, development or creation of the property. Federal funds include any grant by, and any payment under a contract with, a federal agency to the institution, a related organization, or the student or faculty member.
What the document actually says
“Net investment income shall be determined by taking into account any interest income from a student loan made by the applicable educational institution (or any related organization) as gross investment income.”
That sentence, in plain words
Interest on a student loan counts as investment income. That holds where the school made the loan. It also holds where a linked body made it.
What this is about
Some royalty income now counts too. That is where federal money paid for the research. Both used to sit outside the tax.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70415 in the PDF
What the document says
“assets and net investment income of any related organization with respect to an educational institution shall be treated as assets and net investment income, respectively, of the educational institution, except that--”
The section treats a related organization's assets and net investment income as the institution's, except that no amount counts for more than one institution, and that unless the organization is controlled by the institution or is described in section 509(a)(3) with respect to it, assets and income not intended or available for the institution's use or benefit do not count. A related organization is one that controls or is controlled by the institution, is controlled by persons who also control it, or is a supported organization or an organization described in section 509(a)(3) with respect to it. The Secretary must prescribe rules to stop the tax being avoided, including through restructuring endowment funds.
What the document actually says
“assets and net investment income of any related organization with respect to an educational institution shall be treated as assets and net investment income, respectively, of the educational institution, except that--”
That sentence, in plain words
A linked body's assets and income count as the school's. Two carve-outs follow.
What this is about
No sum may be counted for two schools. Money not meant for the school does not count. That second carve-out has its own limits.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall”Who acts: applicable educational institutionsHow: statuteSec. 70415 in the PDF
What the document says
“shall include on the return required under subsection (a)--”
The section adds a new subsection (o) to section 6033 of the Internal Revenue Code of 1986 requiring an applicable educational institution subject to the return requirement to report the number of tuition-paying students taken into account and the number of students worked out under the daily average rule. The amendments apply to taxable years beginning after December 31, 2025.
What the document actually says
“shall include on the return required under subsection (a)--”
That sentence, in plain words
The school must put two things on its return. The list that follows says what they are.
What this is about
One is the count of paying students. The other is the count of all students. The changes start with tax years after 2025.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
Each distinct thing the rewritten section does: impose the tax, set the three rates by endowment per student, define an applicable educational institution, define the student adjusted endowment and how students are counted, bring student loan interest and federally subsidized royalties into net investment income, treat a related organization's assets and income as the institution's, require anti-avoidance rules, add the reporting requirement, and fix the effective date.
The definitions of otherwise-regulatory-exempt royalty income and Federal funds, which are carried in a summary.
The section rewrites section 4968 of the Internal Revenue Code of 1986 and points to sections 25A, 509, 511, 4940 and 6033, none of which is indexed here.
