Proposed regulations were issued by the IRS on June 18, 2019, regarding the new 1.4 percent excise tax on the net investment income of certain private colleges and universities. While the new excise tax is estimated to affect 40 or fewer institutions, it 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.
The proposed regulations define several of the terms necessary for educational institutions to determine whether the section 4968 excise tax applies to them. The IRS guidance clarifies how affected institutions should 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 previously in IRS Notice 2018-55, Guidance on the Calculation of Net Investment Income for Purposes of the Section 4968 Excise Tax Applicable to Certain Private Colleges and Universities, stating that for property held by an institution at the end of 2017, the educational institution is generally allowed to use the property’s fair market value at the end of 2017 as its basis for figuring the tax on any resulting gain.