IRS, Treasury Release Final Rules on Endowments
September 28, 2020

The Internal Revenue Service and Treasury Department last week released the final rules implementing the so-called endowment tax on colleges and universities approved as part of the 2017 tax reform bill.

The measure created a 1.4 percent excise tax on net investment income at private colleges and universities with at least 500 tuition-paying students and assets of at least $500,000 per student. The IRS anticipates that about 25 to 40 institutions will fall under this definition.

While ACE and other higher education groups continue to believe that the tax is misguided and should be repealed, the final rule incorporates many of their recommendations on the draft rule submitted last year. For example, under the rule, students whose tuition is paid through federal grants, scholarships, or institutional aid will not be counted as tuition-paying students, and colleges will not be taxed on the interest they receive on student loans, or revenue from housing students, faculty, or staff.

The rule is in effect when it is filed with the Federal Register.​