Excise tax based on investment income of private colleges and universities

26 U.S.C. § 4968

• Title: 26 — Internal Revenue Code
• Chapter: Subchapter H—Excise Tax Based on Investment Income of Private Colleges and Universities

Text

(a) Tax imposed
There is hereby imposed on each applicable educational institution for the taxable year a tax equal to the applicable percentage of the net investment income of such institution for the taxable year.
(b) Applicable percentage
For purposes of this section, the term "applicable percentage" means—
(1) 1.4 percent in the case of an institution with a student adjusted endowment of at least $500,000, and not in excess of $750,000,
(2) 4 percent in the case of an institution with a student adjusted endowment in excess of $750,000, and not in excess of $2,000,000, and
(3) 8 percent in the case of an institution with a student adjusted endowment in excess of $2,000,000.
(c) Applicable educational institution
For purposes of this subchapter, the term "applicable educational institution" means an eligible educational institution (as defined in section 25A(f)(2))—
(1) which had at least 3,000 tuition-paying students during the preceding taxable year,
(2) more than 50 percent of the tuition-paying students of which are located in the United States,
(3) the student adjusted endowment of which is at least $500,000, and
(4) which is not described in the first sentence of section 511(a)(2)(B) (relating to State colleges and universities).
(d) Student adjusted endowment
For purposes of this section, the term "student adjusted endowment" means, with respect to any institution for any taxable year—
(1) the aggregate fair market value of the assets of such institution (determined as of the end of the preceding taxable year), other than those assets which are used directly in carrying out the institution's exempt purpose, divided by
(2) the number of students of such institution.
(e) Determination of number of students
For purposes of subsections (c) and (d), the number of students of an institution (including for purposes of determining the number of students at a particular location) shall be based on the daily average number of full-time students attending such institution (with part-time students taken into account on a full-time student equivalent basis).
(f) Net investment income
For purposes of this section—
Net investment income shall be determined under rules similar to the rules of section 4940(c).
Net investment income shall be determined by taking into account any interest income from a student loan made by the applicable educational institution (or any related organization) as gross investment income.
Net investment income shall be determined by taking into account any Federally-subsidized royalty income as gross investment income.
For purposes of this subparagraph—
The term "Federally-subsidized royalty income" means any otherwise-regulatory-exempt royalty income if any Federal funds were used in the research, development, or creation of the patent, copyright, or other intellectual or intangible property from which such royalty income is derived.
For purposes of this subparagraph, the term "otherwise-regulatory-exempt royalty income" means royalty income which (but for this subparagraph) would not be taken into account as gross investment income by reason of being derived from patents, copyrights, or other intellectual or intangible property which resulted from the work of students or faculty members in their capacities as such with the applicable educational institution.
The term "Federal funds" includes any grant made by, and any payment made under any contract with, any Federal agency to the applicable educational institution, any related organization, or any student or faculty member referred to in subclause (II).
(g) Assets and net investment income of related organizations
For purposes of subsections (d) and (f), assets and net investment income of any related organization with respect to an educational institution shall be treated as assets and net investment income, respectively, of the educational institution, except that—
(A) no such amount shall be taken into account with respect to more than 1 educational institution, and
(B) unless such organization is controlled by such institution or is described in section 509(a)(3) with respect to such institution for the taxable year, assets and net investment income which are not intended or available for the use or benefit of the educational institution shall not be taken into account.
For purposes of this subsection, the term "related organization" means, with respect to an educational institution, any organization which—
(A) controls, or is controlled by, such institution,
(B) is controlled by 1 or more persons which also control such institution, or
(C) is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution.
(h) Regulations
The Secretary shall prescribe such regulations or other guidance as may be necessary to prevent avoidance of the tax under this section, including regulations or other guidance to prevent avoidance of such tax through the restructuring of endowment funds or other arrangements designed to reduce or eliminate the value of net investment income or assets subject to the tax imposed by this section.

History

(Added Pub. L. 115–97, title I, §13701(a), Dec. 22, 2017, 131 Stat. 2167; amended Pub. L. 115–123, div. D, title II, §41109(a), Feb. 9, 2018, 132 Stat. 159; Pub. L. 119–21, title VII, §70415(a), July 4, 2025, 139 Stat. 221.)

Editorial Notes

Editorial Notes

Amendments
2025—Pub. L. 119–21 amended section generally. Prior to amendment, section consisted of subsecs. (a) to (d) relating to tax imposed, applicable educational institution, net investment income, and assets and net investment income of related organizations, respectively.
2018—Subsec. (b)(1)(A). Pub. L. 115–123, §41109(a)(1), inserted "tuition-paying" after "500".
Subsec. (b)(1)(B). Pub. L. 115–123, §41109(a)(2), inserted "tuition-paying" after "50 percent of the".

Statutory Notes and Related Subsidiaries

Effective Date of 2025 Amendment
Pub. L. 119–21, title VII, §70415(c), July 4, 2025, 139 Stat. 223, provided that: "The amendments made by this section [amending this section and section 6033 of this title] shall apply to taxable years beginning after December 31, 2025."

Effective Date of 2018 Amendment
Pub. L. 115–123, div. D, title II, §41109(b), Feb. 9, 2018, 132 Stat. 159, provided that: "The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017."

Effective Date
Pub. L. 115–97, title I, §13701(c), Dec. 22, 2017, 131 Stat. 2168, provided that: "The amendments made by this section [enacting this section] shall apply to taxable years beginning after December 31, 2017."

Editorial Notes

Amendments
2019—Pub. L. 116–94, div. N, title I, §503(b)(3), Dec. 20, 2019, 133 Stat. 3120, struck out item 4980I "Excise tax on high cost employer-sponsored health coverage".
2010—Pub. L. 111–148, title I, §1513(b), title IX, §9001(b), Mar. 23, 2010, 124 Stat. 256, 853, added items 4980H and 4980I.
2003—Pub. L. 108–173, title XII, §1201(d)(4)(B), Dec. 8, 2003, 117 Stat. 2478, added item 4980G.
2002—Pub. L. 107–147, title IV, §417(17)(B), Mar. 9, 2002, 116 Stat. 56, substituted "Archer MSA contributions" for "medical savings account contributions" in item 4980E.
2001—Pub. L. 107–16, title VI, §659(a)(2), June 7, 2001, 115 Stat. 139, added item 4980F.
1998—Pub. L. 105–206, title VI, §6023(18)(B), July 22, 1998, 112 Stat. 825, substituted "certain tax-favored accounts and annuities" for "individual retirement accounts, certain section 403(b) contracts, and certain individual retirement annuities" in item 4973.
1996—Pub. L. 104–191, title III, §§301(c)(4)(B), 326(b), title IV, §402(b), Aug. 21, 1996, 110 Stat. 2050, 2066, 2087, added items 4980C, 4980D, and 4980E.
Pub. L. 104–188, title I, §1602(b)(5)(B), Aug. 20, 1996, 110 Stat. 1834, struck out item 4978B "Tax on disposition of employer securities to which section 133 applied".
1989—Pub. L. 101–239, title VII, §§7301(d)(2), 7304(a)(2)(C)(iii), Dec. 19, 1989, 103 Stat. 2348, 2353, struck out item 4978A "Tax on certain dispositions of employer securities to which section 2057 applied" and added item 4978B.
1988—Pub. L. 100–647, title I, §1011A(g)(1)(B), title III, §3011(c), Nov. 10, 1988, 102 Stat. 3479, 3625, redesignated item 4981A as 4980A and added item 4980B.
1987—Pub. L. 100–203, title X, §10413(b)(2), Dec. 22, 1987, 101 Stat. 1330–438, added item 4978A.
1986—Pub. L. 99–514, title XI, §§1117(b)(2), 1121(a)(2), 1131(c)(2), 1132(b), 1133(b), title XVIII, §§1854(a)(9)(C), 1899A(75), Oct. 22, 1986, 100 Stat. 2462, 2465, 2478, 2480, 2483, 2877, 2963, added item 4972, inserted "section" in item 4973, substituted "Excise tax on certain accumulations in qualified retirement plans" for "Tax on certain accumulations in individual retirement accounts" in item 4974, struck out "and allocations" after "certain dispositions" in item 4978, and added items 4979, 4979A, 4980, and 4981A.
1984—Pub. L. 98–369, div. A, title IV, §491(d)(56), title V, §§511(c)(2), 531(e)(2), 545(b), July 18, 1984, 98 Stat. 852, 862, 886, 896, substituted "and certain individual retirement annuities" for "certain individual retirement annuities, and certain retirement bonds" in item 4973 and added items 4976 to 4978.
1982—Pub. L. 97–248, title II, §237(c)(2), Sept. 3, 1982, 96 Stat. 511, struck out item 4972 "Tax on excess contributions for self-employed individuals".
1974—Pub. L. 93–406, title II, §§1013(b), 2001(f)(2), 2002(h)(3), Sept. 2, 1974, 88 Stat. 920, 957, 970, added chapter heading and analysis of sections 4971 to 4975.