The House Committee on Ways and Means recently approved two bills that would impact colleges and universities, if enacted. Both bills are direct responses to the recent political unrest on college campuses.
Protecting American Students Act (H.R.8913)
If H.R.8913 passes, it would amend Section 4968 to reduce the endowment tax threshold. The endowment tax was established as part of the 2017 Tax Cuts and Jobs Act. Currently, the endowment tax is a 1.4% excise tax on the net investment income of certain private colleges or university endowments. The following institutions are subject to this tax:
- The institution has at least 500 “tuition-paying” students, and
- The endowment is valued at least $500,000 per “full-time” student.
The bill would amend the endowment tax formula to exclude students who are not eligible for federal financial assistance under the Higher Education Act. To qualify for financial assistance, students must be citizens, nationals or permanent residents of the United States or must be able to provide evidence from the Immigration and Naturalization Service that they are in the U.S. for other than a temporary purpose with the intention of becoming a U.S. citizen. Students who are in the U.S. temporarily or are on a student visa will not be included in the formula. The bill would also require schools to report on Form 990 the number of students taken into account before and after applying the proposed exclusion, thereby reporting the number of international students at the school.
According to the one-page summary by Congressman Drew Ferguson (R-GA), the bill will incentivize universities to either enroll more American students or spend more of their endowments on Americans to avoid being subject to the Endowment Tax. It is estimated that 10-12 additional institutions will be subject to the endowment tax if there are no changes to the makeup of the student population.
University Accountability Act (H.R.8914)
H.R.8914 would add a new Code Section to impose a penalty on all colleges and universities that violate Title VI of the Civil Rights Act of 1964. This act prohibits discrimination on the basis of race, color or national origin. The penalty would be the greater of $100,000 or 5% of the aggregate administrative compensation reported on Form 990, Part VII. In addition, institutions with 501(c)(3) status would be subject to an automatic review of its status after three violations.
Six higher education associations have written to lawmakers in opposition to the legislation. In the joint letter, the associations urged the Committee to not only withdraw H.R. 8913 and H.R. 8914, but also to repeal the endowment tax entirely.
If you have any questions about the potential impact of this legislation on your organization, please reach out to Hailey Adams or Erin Wood.
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