Future regulations on “endowment excise tax” | KPMG Global
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Future regulations for private colleges, universities on “endowment excise tax”

Future regulations on “endowment excise tax”

The IRS today released an advance version of Notice 2018-55 that announces that the IRS and Treasury Department intend to issue regulations to clarify the calculation of net investment income for purposes of section 4968(c). The notice provides a one-time “step up” to fair market value for assets held as of December 31, 2017.


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Notice 2018-55 [PDF 83 KB] provides:


Similar to the rules found in section 4940(c), the Treasury Department and the IRS intend to propose regulations stating that, in the case of property held by an applicable educational institution on December 31, 2017, and continuously thereafter to the date of its disposition, basis of such property for determining gain shall be deemed to be not less than the fair market value of such property on December 31, 2017, plus or minus all adjustments after December 31, 2017, and before the date of disposition consistent with the regulations under section 4940(c). In addition, for purposes of determining loss, basis rules that are consistent with the regulations under section 4940(c) will apply. 


The IRS notice states that colleges and universities may rely on this provision “until further guidance is issued.”

Notice 2018-55 also addresses the rules for netting capital gains and losses. The notice states that similar to the rules found in section 4940(c)(4)(C), the future regulations will provide that losses from sales or other dispositions of property generally will be allowed only to the extent of gains from such sales or other dispositions, and that there will be no capital loss carryovers or carrybacks. It is further expected that with respect to related organizations (described in section 4968(d)(2)), overall net losses from sales or other dispositions of property in one related organization (or from the applicable educational institution) will be allowed to offset overall net gains from such sales or other dispositions from other related organizations (or from the educational institution). Comments on this issue and other issues addressed in the notice are requested. Comments are due by September 6, 2018.


The new tax law (Pub. L. No. 115-97, enacted December 22, 2017) added section 4968 to the Code to impose a 1.4% excise tax on the net investment income of private colleges and universities with at least 500 students (more than 50% of which are located in the United States) and non-exempt use assets with a value at the close of the preceding tax year of at least $500,000 per full-time student. Under the new provision, a university’s assets generally include assets held by certain related organizations (including supporting organizations to the university and organizations controlled by the university), and a university’s net income generally includes investment income derived from those assets. The excise tax provision applies to tax years beginning after December 31, 2017.


For more information, contact a tax professional with KPMG’s Washington National Tax practice:

Preston Quesenberry | +1 202 533 3985 | pquesenberry@kpmg.com 

Randall Thomas | +1 202 533 3786 | randallthomas@kpmg.com

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