§4968 Excise tax based on investment income of private colleges and universities

Summary

Certain private colleges and universities must pay a yearly tax on their net investment income if their endowment per student is at least $500,000 and they meet size and location tests. The tax rate depends on how big the endowment is per student: 1.4% for $500,000–$750,000, 4% for more than $750,000 up to $2,000,000, and 8% for over $2,000,000. To owe the tax, a school must have had at least 3,000 tuition‑paying students the year before, more than half of its tuition‑paying students in the United States, and not be a state college or university. Short definitions: “student adjusted endowment” = value of assets not used directly for the school’s exempt activities divided by number of students; “number of students” = daily average full‑time equivalent enrollment; “net investment income” = calculated like the private‑foundation rules and it includes interest from student loans and royalties tied to federal funding; “related organization” = groups that control or are controlled by the school or that the school supports, whose assets and income may be counted with limits. The Secretary must make rules to stop attempts to avoid the tax, including by rearranging endowments.