Endowment tax

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Endowment tax is the taxation of financial endowments that otherwise not taxed due to their charitable, educational, or religious mission. Endowments can be up to several billion dollars at the wealthiest universities, the wealthiest charitable foundations, and wealthiest medical foundations. Endowment taxes are typically enacted in response to criticisms that endowments are not operating as nonprofit organizations or that they have served as tax shelters, or that they are depriving local governments of essential property and other taxes.[1][2]

Endowment tax in the United States[edit]

The city of Cambridge, Massachusetts, has proposed taxing MIT and other major universities on these previously exempt, non-profit earnings, however most organizations still fight against the introduction of this tax.[3] The non-profit status of some institutions like hospitals were been questioned in the United States House Ways and Means Committee in 2005.[4]

Excise tax on private foundation endowments[edit]

Unlike nonprofit corporations classified as a public charity, private foundations in the United States are generally subject to a 1% or 2% excise tax on any net investment income.[5][6]

Federal changes in 2017 and 2018[edit]

As enacted in the Tax Cuts and Jobs Act of 2017 and amended by the Bipartisan Budget Act of 2018, a proposed excise tax of 1.4% has been levied on endowments supported by institutions who have at least 500 tuition-paying students with a resulting net asset of $500,000 per student. In turn, without adjusting the $500,000 for inflation, more institutions will result in being subject to this tax over time. Thus the tax applies to the wealthiest large institutions as well as some smaller colleges with small enrollments as of present day.[7]

See also[edit]

References[edit]

  1. ^ "Ways and Means Questions Nonprofit Hospitals' Tax Status" (Web). The Commonwealth Fund 1 East 75th Street, New York, NY. Retrieved 2007-01-22.
    Jill Horwitz (2005-05-26). "Testimony Before House Ways and Means Committee" (PDF).
  2. ^ He, Ray C. (October 4, 2005). "Cambridge Seeks to Tax Earnings on Endowment" (Web). Volume 125, Number 44. The Tech.
  3. ^ He, Ray C. (October 4, 2005). "Cambridge Seeks to Tax Earnings on Endowment" (Web). Volume 125, Number 44. The Tech.
  4. ^ "Ways and Means Questions Nonprofit Hospitals' Tax Status" (Web). The Commonwealth Fund 1 East 75th Street, New York, NY. Retrieved 2007-01-22.
    Jill Horwitz (2005-05-26). "Testimony Before House Ways and Means Committee" (PDF).
  5. ^ https://www.irs.gov/irm/part7/irm_07-026-001.html
  6. ^ Glossary of Philanthropic Terms. (n.d.). Retrieved November 5, 2014, from http://dearborncf.org/glossary.aspx
  7. ^ "Wealthy colleges face uncertainty as they seek ways to avoid new endowment tax". www.insidehighered.com. Retrieved 2019-01-10.