Colleges Get Tax Reprieve in Push to Value Endowment Assets

Around 30 private universities across the country will be liable for a 1.4% endowment tax on net investment earnings for the fiscal year starting July 1, 2018. To fit the criteria to be responsible to pay the tax schools must have: more than 500 tuition-paying students and net assets of at least $500,000 per student. However, the Internal Revenue Service procured some guidance to the colleges: “they won’t be taxed on unrealized income from their billions of dollars in assets before the levy was approved,” thus using a “stepped-up” basis for calculating the tax owed.

“That’s very good news — it will give colleges and universities an important element of certainty as they prepare to implement the new tax,” Hamill said, senior vice president of the National Association of College and University Business Officers, the trade group that sought the use of the stepped-up asset values.

Two bills involving the endowment tax have been introduced into the House of Representatives: One that will completely repeal the tax, and another that will waive the tax payment for universities that  spend a quarter of their annual earnings on middle-class tuition relief.

See Janet Lorin, Colleges Get Tax Reprieve in Push to Value Endowment Assets, Bloomberg, June 8, 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.