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Treasury Department Releases Endowment Tax Draft Rules

July 03, 2019

Building through a window

ACE to submit comments on the regulations, which could harm students, families

​The Treasury Department has released proposed rules for the tax on the endowments of private colleges and universities included in the 2017 tax overhaul, a provision ACE continues to maintain will diminish the resources available for student financial aid, teaching, and research at affected institutions. 

The Tax Cuts and Jobs Act (TCJA) imposes a 1.4 percent excise tax on investment income at private institutions with at least 500 tuition-paying students and endowments worth at least $500,000 per student. The Internal Revenue Service anticipates that about 25 to 40 institutions will fall under this definition. 

As ACE told lawmakers while the Republican-supported TCJA was being negotiated, colleges and universities with larger endowments use those resources to provide substantial student financial aid to enhance access, particularly for low- and middle-income students. Institutions also depend on their endowments to support new and emerging fields of study and research, along with nearly every aspect of an institution’s operation. 

The long-awaited draft rule is an attempt to clarify how to count the number of full-time students and what income and assets are subject to the tax, which most affected institutions will pay for the first time this fiscal year. However, questions remain about the details, and the negative impact of the law on how these institutions serve their students remains unchanged. 

“The regulations pretty much make clear that the tax is going to harm students and families by imposing a direct cost on the affected schools and an indirect cost from the administrative burden,” ACE’s Steven M. Bloom told The Washington Post​. “It is enormously complicated.” 

ACE and other higher education associations will file comments on the proposed rules, which are due by Oct. 1. 

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