Endowment Accountability Act
The Endowment Accountability Act would significantly change how private colleges and universities are taxed on their endowment investment income. It would raise the excise tax rate from 1.4% to 10% on net investment income of institutions that meet the IRS definition of an “applicable educational institution.” To broaden which institutions are taxed, the bill lowers the threshold for asset-per-student used to define applicability—from $500,000 to $200,000 in aggregate fair market value per student. The changes would apply to taxable years beginning after enactment. In short, more private colleges would face a much higher tax on their endowment investment income, potentially affecting how they manage endowments, spend on students, and plan long-term finances. The bill is introduced by Representative Lawler and referred to the Ways and Means Committee. It relies on the existing framework in the Internal Revenue Code (Section 4968) that imposes an excise tax on investment income of endowment funds held by private educational institutions, but with a substantially higher rate and a broader pool of institutions included.
Key Points
- 1Substantial rate increase: The excise tax on net investment income for applicable educational institutions would rise from 1.4% to 10%.
- 2Broadened definition of applicability: The threshold for asset-per-student to determine which private colleges/universities are subject to the tax is lowered from $500,000 to $200,000 in aggregate fair market value per student, expanding the set of taxed institutions.
- 3Effective date: The changes would apply to taxable years beginning after the date of enactment.
- 4Scope and basis: The changes operate under Section 4968 of the Internal Revenue Code, targeting private colleges and universities with endowments and investment income—i.e., the endowment tax regime.
- 5Compliance/administration: The bill would impose new/expanded tax liability on more institutions, likely increasing reporting and administrative requirements for affected schools.