Spring 2018 issue of Horizons

Specific Provisions for Colleges and Universities Private College and University Endowment Excise Tax The new IRC section 4968 of the 2017 Tax Act assesses a 1.4% excise tax on the net investment income of private colleges and universities that meet the following:

except that the covered employee must also be a “highly compensated” employee. A highly compensated employee is an employee who received compensation greater than $120,000 and who was in the top 20% of the organization’s wage earners in the prior year (the $120,000 amount is indexed for inflation). Excess payments are defined as payments in excess of three times the employee’s average salary for the last five years.

∙ Have at least 500 tuition-paying students

∙ At least 50% of the student body is in the U.S.

∙ Non-exempt use assets are at least $500,000 per full-time equivalent student The assets and income from certain related organizations, including supporting organizations, are combined for excise tax assessment purposes. This excise tax provision was added to the Act in order to address the issue of when the endowment size of private educational institutions is out of proportion with the mission of the organization (i.e. where there is a perception that the endowment is not being adequately expended for educational purposes). Non-deductibility of Athletic Tickets For tax years 2017 and prior, donors whose contributions included the right to purchase athletic tickets were allowed a charitable contribution deduction of 80% of the payment amount. Beginning January 1, 2018, the charitable deduction is no longer allowed. The disallowance is based on the right to purchase the tickets, regardless of whether tickets are readily available or actually purchased. Widely Discussed Provisions that did not Make it into the Act ∙ Changes to the Johnson amendment, which could have allowed political campaign activity ∙ Addition to UBI income inclusion for licensing revenue from use of the not-for- profit’s name or logo

38 Tax Law Impact to the Not-For-Profit and Colleges and Universities Sectors