Protecting Endowments from Our Adversaries Act
The Protecting Endowments from Our Adversaries Act would create a new excise tax regime in the Internal Revenue Code aimed at private colleges and universities with very large endowments. The core idea is to punish or deter investments in certain “listed investments” tied to entities and technologies deemed adversarial or sensitive by the government. The bill imposes both a tax on acquiring such investments (50% of fair market value at the time of acquisition) and a tax on net income from 1-year listed investments (100% of net income for the year). It applies only to “specified educational institutions” meeting a size threshold (aggregate assets over $1 billion, excluding assets used directly for exempt purposes). The regime relies on a government-maintained list of “listed persons” drawn from commerce and communications regulatory lists. There are rules for how pooled funds can certify they are not holding listed investments, and details on how debt is valued, how related organizations are treated, and when the rules take effect. In short, the bill creates a targeting mechanism to discourage very large private colleges’ endowments from investing in certain government-listed or technology-related restricted entities.
Key Points
- 150% excise tax on acquisition of listed investments: If a large private college/university acquires one or more listed investments during a taxable year, the institution owes a tax equal to half of the fair market value of those investments at the time of acquisition.
- 2100% excise tax on net income from 1-year listed investments: For listed investments held for a 1-year period, the institution must pay a tax equal to the excess of (income and gains from the investment) over (deductions and losses related to that income/gain) — effectively a punitive tax on net income from such investments.
- 3Definition and scope of listed investments: A listed investment covers stock or other equity interests, debt, or any contract/derivative with respect to such interests in persons listed on (a) the Entity List, (b) the Military End User List, (c) the Unverified List (all maintained by the Secretary of Commerce), or (d) the FCC Covered List. The Secretary would maintain a list of listed persons.
- 4Targeted institutions: The tax applies to “specified educational institutions,” defined as eligible educational institutions with assets over $1 billion (excluding assets used directly for exempt purposes) and that are not described in a specific provision tying them to certain state colleges/universities. Assets held by related organizations are generally treated as assets of the institution for purposes of the tax, with limitations.
- 51-year listed investment standard: A 1-year listed investment is one that remains a listed investment for the entire one-year period ending when income is received or gains are recognized.
- 6Pooled funds and certifications: Regulated investment companies, ETFs, and other pooled investments can be certified by the Secretary as not holding listed investments, which can exempt them from triggering the listed investment rules.
- 7Debt valuation and regulations: The fair market value of debt is treated as the principal amount for tax purposes. The bill authorizes Treasury regulations or guidance to implement and clarify these rules, including how they apply to institutionally related foundations and pooled investments.
- 8Effective dates and prior acquisitions: The new taxes generally apply to taxable years ending after the earlier of (a) the end of the first calendar year after enactment or (b) the end of the 1-year period after the list of listed persons is established, with grandfathering for investments acquired before that window. Income and gains before the specified dates aren’t taxed under these provisions.