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[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5916 Introduced in House (IH)]

<DOC>

115th CONGRESS
  2d Session
                                H. R. 5916

     To amend the Internal Revenue Code of 1986 to impose a tax on 
  institutions of higher education that fail to use 25 percent of the 
 growth in endowment value for grants for working-family students each 
                     year, and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                              May 22, 2018

   Mr. Reed introduced the following bill; which was referred to the 
   Committee on Ways and Means, and in addition to the Committee on 
Education and the Workforce, for a period to be subsequently determined 
 by the Speaker, in each case for consideration of such provisions as 
        fall within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL

 
     To amend the Internal Revenue Code of 1986 to impose a tax on 
  institutions of higher education that fail to use 25 percent of the 
 growth in endowment value for grants for working-family students each 
                     year, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Reducing Excessive Debt and Unfair 
Costs of Education Act of 2018'' or the ``REDUCE Act of 2018''.

SEC. 2. EXCISE TAX ON UNDISTRIBUTED REQUIRED PAYOUTS FROM ENDOWMENTS OF 
              CERTAIN INSTITUTIONS OF HIGHER EDUCATION.

    (a) In General.--Subchapter H of chapter 42 of the Internal Revenue 
Code of 1986 is amended to read as follows:

``Subchapter H--Failure by Certain Institutions of Higher Education to 
                          Make Certain Payouts

``Sec. 4968. Excise tax on undistributed required payouts from 
                            endowments of certain institutions of 
                            higher education.

``SEC. 4968. EXCISE TAX ON UNDISTRIBUTED REQUIRED PAYOUTS FROM 
              ENDOWMENTS OF CERTAIN INSTITUTIONS OF HIGHER EDUCATION.

    ``(a) Initial Tax.--There is hereby imposed, on an undistributed 
required payout of a qualified institution of higher education for a 
taxable year, on the first day of the first academic period beginning 
after the close of such taxable year, a tax equal to 1.4 percent of 
such undistributed required payout as of such day.
    ``(b) Additional Tax.--In any case in which an initial tax is 
imposed under subsection (a) on an undistributed required payout, if 
any portion of such undistributed required payout exists--
            ``(1) on the date which is 1 year after the date on which 
        the initial tax was imposed, there is hereby imposed an 
        additional tax equal to 30 percent of such undistributed 
        required payout as of the date such tax is imposed, and
            ``(2) on the date which is 2 years after the date on which 
        the initial tax was imposed, there is hereby imposed an 
        additional tax equal to 100 percent of such undistributed 
        required payout as of the date such tax is imposed.
    ``(c) Suspension of Deductible Contributions.--
            ``(1) In general.--No deduction shall be allowed under any 
        provision of this title (including sections 170, 545(b)(2), 
        556(b)(2), 642(c), 2055, 2106(a)(2), and 2522) with respect to 
        any contribution to an organization during a contribution 
        suspension period.
            ``(2) Contribution suspension period.--For purposes of ths 
        subsection, the term `contribution suspension period' means, 
        with respect to any qualified institution of higher education, 
        the period beginning on the day after a return under section 
        6033 is filed for a taxable year for which there is an 
        undistributed required payout, and ending on the first day no 
        portion of such undistributed required payout exists.
            ``(3) Notice of suspension.--If the deductibility of 
        contributions is suspended under this subsection, the Internal 
        Revenue Service shall update the listings of tax-exempt 
        organizations, and the Internal Revenue Service and such 
        organization shall publish appropriate notice to the public of 
        such suspension and of the fact that contributions to such 
        organization are not deductible during the period of such 
        suspension.
    ``(d) Special Rule for Complete Payment for Working-Family 
Students.--With respect to a qualified institution of higher education 
for a taxable year, if, during the one-year period preceding the date 
on which an initial tax under subsection (a) would (but for this 
subsection) be imposed on the undistributed required payout for such 
taxable year, each degree-seeking working-family student receives an 
amount of grants for such period that is not less than the cost of 
attendance for such student at such institution during such period, no 
tax shall be imposed under this section on the undistributed required 
payout for such taxable year.
    ``(e) Definitions and Special Rule.--For purposes of this section--
            ``(1) Qualified institution of higher education.--
                    ``(A) In general.--The term `qualified institution 
                of higher education' means an eligible educational 
                institution (as defined in section 25A(f)(2))--
                            ``(i) which had at least 500 tuition-paying 
                        students during the preceding taxable year,
                            ``(ii) more than 50 percent of the tuition-
                        paying students of which are located in the 
                        United States,
                            ``(iii) the aggregate fair market value of 
                        the assets of which at the end of the preceding 
                        taxable year (other than those assets which are 
                        used directly in carrying out the institution's 
                        exempt purpose) is at least $500,000 per 
                        student of the institution, and
                            ``(iv) of which less than the applicable 
                        percentage of undergraduates enrolled during 
                        the taxable year receive Federal Pell Grants 
                        under section 401 of the Higher Education Act 
                        of 1965 (20 U.S.C. 1070a).
                    ``(B) Students.--For purposes of subparagraph (A), 
                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).
                    ``(C) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage is--
                            ``(i) in the case of taxable years 
                        beginning in 2018, 28 percent,
                            ``(ii) in the case of taxable years 
                        beginning in 2019, 29 percent,
                            ``(iii) in the case of taxable years 
                        beginning in 2020, 30 percent,
                            ``(iv) in the case of taxable years 
                        beginning in 2021, 31 percent,
                            ``(v) in the case of taxable years 
                        beginning in 2022, 32 percent, and
                            ``(vi) in the case of taxable years 
                        beginning after 2022, 33 percent.
            ``(2) Undistributed required payout.--With respect to a 
        qualified institution of higher education for a taxable year--
                    ``(A) In general.--The term `undistributed required 
                payout' means, as of a date on which a tax is imposed 
                under subsection (a) or (b), the amount by which--
                            ``(i) the required payout for such taxable 
                        year, exceeds
                            ``(ii) the grants to working-family 
                        students made by such institution before such 
                        date out of such required payout.
                    ``(B) De minimis exception.--If an undistributed 
                required payout with respect to a qualified institution 
                of higher education for a taxable year is not more than 
                1 percent of the required payout with respect to such 
                institution for such taxable year (or, if less, 
                $250,000), subsections (a), (b), and (c) shall not 
                apply with respect to such undistributed required 
                payout.
                    ``(C) Progressive grant requirement.--A grant out 
                of a required payout for a working-family student for 
                an academic period shall only qualify for the purposes 
                of subparagraph (A)(ii) to the extent that the amount 
                of grants by such institution for such student for such 
                academic period is not more than the least amount of 
                grants given by such institution out of such required 
                payout for such academic period to any degree-seeking 
                working-family student with a lower household income 
                than such student. For purposes of the preceding 
                sentence, grant amounts shall be determined on a per 
                credit basis.
            ``(3) Required payout.--The term `required payout' means, 
        with respect to any qualified institution of higher education 
        for any taxable year, an amount equal to 25 percent of the 
        average net investment income with respect to such institution 
        for such taxable year and the preceding 6 taxable years.
            ``(4) Net investment income.--The term `net investment 
        income' means, with respect to any qualified institution of 
        higher education for any taxable year, the excess (if any) of--
                    ``(A) the aggregate fair market value of all 
                endowments of such institution (determined as of the 
                close of the preceding taxable year), minus any 
                contributions to such endowments received during such 
                preceding taxable year, plus any spending from such 
                endowments during such preceding taxable year, over
                    ``(B) the aggregate fair market value of all 
                endowments of such institution (determined as of the 
                close of the second preceding taxable year).
            ``(5) Grant for a working-family student.--
                    ``(A) In general.--The term `grant for a working-
                family student' means, with respect to a qualified 
                institution of higher education, a grant by such 
                institution for all or a portion of the cost of 
                attendance to a working-family student attending such 
                institution.
                    ``(B) Working-family student.--The term `working-
                family student' means, with respect to a qualified 
                institution of higher education for a taxable year, an 
                individual--
                            ``(i) who is enrolled (part-time or full-
                        time) as an undergraduate student in such 
                        institution during an academic period beginning 
                        in such taxable year; and
                            ``(ii) whose household income for the 
                        taxable year does not exceed 600 percent of an 
                        amount equal to the poverty line for a family 
                        of the size involved.
            ``(6) Cost of attendance.--The term `cost of attendance', 
        with respect to a student attending a qualified institution of 
        higher education for an academic period, has the meaning given 
        such term in section 472 of the Higher Education Act of 1965 
        (20 U.S.C. 1087ll), less any grants for cost of attendance (as 
        defined in such section) received by such student from any 
        person other than such institution during such academic period.
            ``(7) FAFSA safe harbor.--For purposes of this section, a 
        qualified institution of higher education may rely on data from 
        Free Applications for Federal Student Aid authorized under 
        section 483(a) of the Higher Education Act of 1965 (20 U.S.C. 
        1092(a)).
            ``(8) Family size; household income; poverty line.--The 
        terms `family size', `household income', and `poverty line' 
        have the respective meanings given such terms in section 
        36B(d). In the case of any student with respect to whom a 
        deduction is allowable under section 151 to another taxpayer, 
        the terms `family size' and `household income' shall be 
        determined with respect to such other taxpayer.
            ``(9) Assets and net investment income of related 
        organizations.--
                    ``(A) In general.--For purposes of paragraphs 
                (1)(A)(iii) and (4), 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--
                            ``(i) no such amount shall be taken into 
                        account with respect to more than 1 educational 
                        institution, and
                            ``(ii) 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.
                    ``(B) Related organization.--For purposes of this 
                subsection, the term `related organization' means, with 
                respect to an educational institution, any organization 
                which--
                            ``(i) controls, or is controlled by, such 
                        institution,
                            ``(ii) is controlled by one or more persons 
                        which also control such institution, or
                            ``(iii) 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.''.
    (b) Special Rules Relating to Deduction of Restricted and 
Unrestricted Gifts.--Section 170 of such Code is amended--
            (1) by redesignating subsection (p) as subsection (q); and
            (2) by inserting after subsection (o) the following new 
        subsection:
    ``(p) Special Rule for Gifts to Institutions of Higher Education.--
            ``(1) In general.--In the case of contributions by an 
        individual to a institution of higher education (as defined in 
        subsection section 4968(e))--
                    ``(A) if the use of any such amounts are restricted 
                by the taxpayer to a use other than scholarships, no 
                deduction shall be allowed for so much of the aggregate 
                of such restricted contributions for the taxable year 
                as exceeds $5,000,
                    ``(B) if the use of such amounts are unrestricted, 
                the amount taken into account under this section for 
                the taxable year shall include an allowance equal to 25 
                percent of the aggregate amount of such unrestricted 
                contributions, and
                    ``(C) if the use of any such amounts are restricted 
                by the taxpayer to scholarships for working-family 
                students (as defined in section 4968(e)(5)(B)), the 
                amount taken into account under this section for the 
                taxable year shall include an allowance equal to 50 
                percent of the aggregate amount of such scholarship 
                restricted contributions.
        Any such allowance shall be taken into account under this 
        section in the same manner as the contribution with respect to 
        which such allowance was determined, except that the limitation 
        with respect to an individual for any taxable year under 
        subsection (b)(1)(A) shall be increased by the amount of any 
        allowances allowed under paragraphs (B) or (C) for such taxable 
        year.
            ``(2) Institution of higher education.--For purposes of 
        this subsection, the term `educational institution' means an 
        institution that is described in section 101 of the Higher 
        Education Act of 1965 (20 U.S.C. 1001).''.
    (c) Requirements for Tax Exempt Status of Qualified Institutions of 
Higher Education.--Section 501 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new subsection:
    ``(s) Additional Requirements for Institutions of Higher 
Education.--
            ``(1) Five-year plan.--An institution of higher education 
        (as defined in section 170(p)(2)) shall not be treated as 
        described in subsection (c)(3) unless the institution submits 
        to the Secretary (at such time and in such manner as the 
        Secretary shall prescribe) 5-year plans which--
                    ``(A) are designed to ensure the percentage 
                increase in the cost of education for any academic year 
                at such institution (as compared to the preceding 
                academic year) will not exceed the percentage increase 
                in the Consumer Price Index for all-urban consumers 
                published by the Department of Labor (for the same 
                periods),
                    ``(B) in the case of any plan after the first 5-
                year plan submitted under this paragraph, describe any 
                failure to achieve the goals of the preceding 5-year 
                plan and any steps being taken to address such 
                failures,
                    ``(C) identify areas in which costs are projected 
                to increase the most and the measures being taken to 
                address such cost increases, and
                    ``(D) contain such other information as the 
                Secretary determines is necessary for carrying out the 
                purposes of this subsection.
            ``(2) Report.--The plan shall include a report which 
        includes information detailing salaries paid by the 
        institution, any certified audited financial statement, any 
        fees paid by the institution for investment management 
        services, the institutions's long-term spending plan, the 
        institution's investments (including the risk profile and 
        expected rate of return of such investments), and the 
        institution's 5 largest spending categories, the amounts spent 
        within those categories, and the 5 items within each category 
        on which the most is spent. The institution shall make such 
        plan publicly available and include such plan on the 
        institution's website.
            ``(3) Educational guarantee.--A qualified institution of 
        higher education (as defined in section 4968(e)(1)) shall not 
        be treated as described in subsection (c)(3) unless--
                    ``(A) at least 20 percent of the students of such 
                institution are eligible to receive a Federal Pell 
                Grant under section 401 of the Higher Education Act of 
                1965 for the academic year beginning in the taxable 
                year, and
                    ``(B) at least 50 percent of the students of such 
                institution have household income for the taxable year 
                that does not exceed 600 percent of an amount equal to 
                the poverty line for a family of the size involved 
                (determined under rules similar to the rules of section 
                4968(e)(8)).''.
    (d) Clerical Amendment.--The table of subchapters for chapter 42 of 
such Code is amended by adding at the end the following new item:

``subchapter h. failure by certain institutions of higher education to 
                        make certain payouts''.

    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of enactment of this 
Act.

SEC. 3. EXCISE TAXES ON RESTRICTED DONATIONS TO HIGHER EDUCATION 
              INSTITUTIONS.

    (a) Donor Advised Funds.--Section 4966 of the Internal Revenue Code 
of 1986 is amended by adding at the end the following new subsection:
    ``(e) Special Rule for Unrestricted Donations to Qualified 
Institutions of Higher Education.--
            ``(1) In general.--In the case of any restricted 
        distribution from a donor advised fund to an institution of 
        higher education (as defined in section 170(p)(2))--
                    ``(A) such distributions shall be treated as a 
                taxable distribution for purposes of this section, and
                    ``(B) subsection (a) shall be applied by 
                substituting `100 percent' for `20 percent'.
            ``(2) Restricted distribution.--For purposes of this 
        subsection, the term `restricted distribution' means a 
        distribution restricted by the fund to a use other than 
        scholarships.''.
    (b) Private Foundations.--Section 4945 of such Code is amended by 
adding at the end the following new subsection:
    ``(j) Special Rule for Unrestricted Donations to Qualified 
Institutions of Higher Education.--
            ``(1) In general.--In the case of any restricted 
        distribution from a private foundation to an institution of 
        higher education (as defined in section 170(p)(2))--
                    ``(A) such distribution shall be treated as a 
                taxable expenditure for purposes of this section, and
                    ``(B) subsection (a)(1) shall be applied by 
                substituting `100 percent' for `20 percent'.
            ``(2) Restricted distribution.--For purposes of this 
        subsection, the term `restricted distribution' means a 
        distribution restricted by the foundation to a use other than 
        scholarships.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after the date of the enactment of this Act.

SEC. 4. REPORT ON NET TUITION FOR CERTAIN INSTITUTIONS OF HIGHER 
              EDUCATION.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
61 of the Internal Revenue Code of 1986 is amended by adding at the end 
the following new section:

``SEC. 6050X. DISCLOSURES REQUIRED WITH RESPECT TO NET TUITION.

    ``(a) In General.--Each institution of higher education (as defined 
in section 170(p)(2)) shall for the taxable year make a return to the 
Secretary which contains--
            ``(1) the amount of the excess (if any), for each working-
        family student (as defined in such section) at such 
        institution, of--
                    ``(A) the cost of attendance at such institution 
                (as defined in section 472), over
                    ``(B) the grants from such institution received by 
                such student, and
            ``(2) the number of students enrolled at such institution 
        on the first day of the taxable year.
    ``(b) Form and Manner.--Such return shall be made at such time, and 
in such form and manner, as the Secretary may by regulation 
prescribe.''.
    (b) Clerical Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 61 of such Code is amended by 
adding at the end the following new item:

``Sec. 6050X. Disclosures required with respect to net tuition.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 5. FEDERAL PELL GRANT PROGRAM FUNDING.

    Section 401(b)(7)(iv) of the Higher Education Act of 1965 (20 
U.S.C. 1070a(b)(7)(iv))--
            (1) in subclause (XI), by striking the period at the end 
        and inserting a comma; and
            (2) by inserting at the end the following flush left text: 
        ``, which, beginning with fiscal year 2019, for each fiscal 
        year for which amounts made are made available pursuant to 
        subclauses (IX) through (XI), the amount made available for the 
        fiscal year shall be increased by an amount equal to the 
        increase in receipts to the Treasury during the preceding 
        fiscal year attributable to the taxes imposed by section 4968 
        of the Internal Revenue Code of 1986.''.

SEC. 6. CONSUMER INFORMATION.

    Section 132(i)(1) of the Higher Education Act of 1965 (20 U.S.C. 
1015a(i)(1)) is amended by adding at the end the following:
                    ``(AA) Total number of employees of the institution 
                in charge of managing or advising the endowment or 
                investments of the institution.
                    ``(BB) Annual salary and performance-based 
                compensation of each individual employed by the 
                institution that is involved in management or advising 
                the endowment.
                    ``(CC) The total expenses for managing the 
                endowment of the institution, disaggregated--
                            ``(i) by office space and equipment, and 
                        any other expenses not described in clause 
                        (ii); and
                            ``(ii) by outside management and 
                        performance fees by category.
                    ``(DD) Total institutional aid provided to students 
                by the institution and the total amount of such aid, 
                disaggregated--
                            ``(i) by institutional aid provided using 
                        endowment funds;
                            ``(ii) by institutional aid provided using 
                        non-endowment funds;
                            ``(iii) by the type of such aid (such as 
                        merit, need, or athletic); and
                            ``(iv) by the income categories described 
                        in paragraph (6).
                    ``(EE) The number of students whose parents and 
                grandparents have provided the institution--
                            ``(i) more than $100,000 during the 4-year 
                        period beginning on the day before the 
                        student's first date of attendance through the 
                        graduation, transfer, or expulsion of the 
                        student; or
                            ``(ii) more then $500,000 in the aggregate.
                    ``(FF) The number of students whose parent or 
                grandparent (biological, custodial, step-parent etc) 
                graduated from the institution.''.
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