The Internal Revenue Service (IRS) recently announced that private colleges and universities subject to the new endowment excise tax can use the stepped-up basis for computing net investment income. This new rule means that institutions may use the fair market value of property as of December 31, 2017 for calculating the taxable gain. For schools that sell property at a gain, the stepped-up basis will likely decrease the amount of taxable gain and lift some of the administrative burden of determining the gain in value of older purchases.

The Tax Cuts and Jobs Act, signed into law in December 2017, includes a provision that applies a 1.4 percent excise tax on net investment income at certain private colleges and universities. Lawmakers left it to the U.S. Treasury Department and IRS to issue regulations defining various aspects of the new tax, including how institutions should compute net investment income. Institutions can rely on this IRS guidance for completing their calculations until the agency releases final guidance/regulations on the tax. While no official issuance date has been announced, reports indicate that the IRS could release additional guidance on the excise tax as early as the end of this year. The agency is accepting public comments until September 6.

While the IRS guidance is certainly a positive development, CASE continues to urge lawmakers to support the Don't Tax Higher Education Act (H.R. 5220), bipartisan legislation that would repeal the new excise tax entirely.

For the latest developments on the endowment excise, please visit the CASE Advocacy Action Center and join the CASE Advocacy Network.

This article is from the July 2018 BriefCASE issue.