IRS issues guidance on the tax on the net investment income of certain private colleges and universities

IR-2019-120, June 28, 2019

WASHINGTON — The Internal Revenue Service today issued proposed regulations (PDF) for the new 1.4 percent excise tax on the net investment income of certain private colleges and universities.

The proposed regulations define several of the terms necessary for educational institutions to determine whether the section 4968 excise tax applies to them.

The tax applies to any private college or university that has at least 500 full-time tuition-paying students (more than half of whom are located in the U.S.) and that has assets other than those used in its charitable activities worth at least $500,000 per student. An estimated 40 or fewer institutions are affected.

For affected institutions, the guidance clarifies how to determine net investment income, including how to include the net investment income of related organizations and how to determine an institution’s basis in property.

These proposed regulations incorporate the interim guidance provided in Notice 2018-55 (PDF), that for property held by an institution at the end of 2017, generally allows the educational institution to use the property’s fair market value at the end of 2017 as its basis for figuring the tax on any resulting gain.

Updates on the implementation of this and other TCJA provisions can be found on the Tax Reform page of IRS.gov.