I 

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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Reducing Excessive 

5 Debt and Unfair Costs of Education Act of 2018’’ or the 

6 ‘‘REDUCE Act of 2018’’. 


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1 SEC. 2. EXCISE TAX ON UNDISTRIBUTED REQUIRED PAY2 OUTS FROM ENDOWMENTS OF CERTAIN IN3 STITUTIONS OF HIGHER EDUCATION. 

4 (a) IN GENERAL.—Subchapter H of chapter 42 of 

5 the Internal Revenue Code of 1986 is amended to read 

6 as follows: 

7 ‘‘Subchapter H—Failure by Certain Institu8 tions of Higher Education to Make Cer9 tain Payouts 

‘‘Sec. 4968. Excise tax on undistributed required payouts from endowments of 

certain institutions of higher education. 

10 ‘‘SEC. 4968. EXCISE TAX ON UNDISTRIBUTED REQUIRED 

11 PAYOUTS FROM ENDOWMENTS OF CERTAIN 

12 INSTITUTIONS OF HIGHER EDUCATION. 

13 ‘‘(a) INITIAL TAX.—There is hereby imposed, on an 

14 undistributed required payout of a qualified institution of 

15 higher education for a taxable year, on the first day of 

16 the first academic period beginning after the close of such 

17 taxable year, a tax equal to 1.4 percent of such undistrib18 uted required payout as of such day. 

19 ‘‘(b) ADDITIONAL TAX.—In any case in which an ini20 tial tax is imposed under subsection (a) on an undistrib21 uted required payout, if any portion of such undistributed 

22 required payout exists— 

23 ‘‘(1) on the date which is 1 year after the date 

24 on which the initial tax was imposed, there is hereby 


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1 imposed an additional tax equal to 30 percent of 

2 such undistributed required payout as of the date 

3 such tax is imposed, and 

4 ‘‘(2) on the date which is 2 years after the date 

5 on which the initial tax was imposed, there is hereby 

6 imposed an additional tax equal to 100 percent of 

7 such undistributed required payout as of the date 

8 such tax is imposed. 

9 ‘‘(c) SUSPENSION OF DEDUCTIBLE CONTRIBU10 TIONS.— 

11 ‘‘(1) IN GENERAL.—No deduction shall be al12 lowed under any provision of this title (including 

13 sections 170, 545(b)(2), 556(b)(2), 642(c), 2055, 

14 2106(a)(2), and 2522) with respect to any contribu15 tion to an organization during a contribution sus16 pension period. 

17 ‘‘(2) CONTRIBUTION SUSPENSION PERIOD.— 

18 For purposes of ths subsection, the term ‘contribu19 tion suspension period’ means, with respect to any 

20 qualified institution of higher education, the period 

21 beginning on the day after a return under section 

22 6033 is filed for a taxable year for which there is 

23 an undistributed required payout, and ending on the 

24 first day no portion of such undistributed required 

25 payout exists. 


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1 ‘‘(3) NOTICE OF SUSPENSION.—If the deduct2 ibility of contributions is suspended under this sub3 section, the Internal Revenue Service shall update 

4 the listings of tax-exempt organizations, and the In5 ternal Revenue Service and such organization shall 

6 publish appropriate notice to the public of such sus7 pension and of the fact that contributions to such 

8 organization are not deductible during the period of 

9 such suspension. 

10 ‘‘(d) SPECIAL RULE FOR COMPLETE PAYMENT FOR

11 WORKING-FAMILY STUDENTS.—With respect to a quali12 fied institution of higher education for a taxable year, if, 

13 during the one-year period preceding the date on which 

14 an initial tax under subsection (a) would (but for this sub15 section) be imposed on the undistributed required payout 

16 for such taxable year, each degree-seeking working-family 

17 student receives an amount of grants for such period that 

18 is not less than the cost of attendance for such student 

19 at such institution during such period, no tax shall be im20 posed under this section on the undistributed required 

21 payout for such taxable year. 

22 ‘‘(e) DEFINITIONS AND SPECIAL RULE.—For pur23 poses of this section— 

24 ‘‘(1) QUALIFIED INSTITUTION OF HIGHER EDU25 CATION.— 


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1 ‘‘(A) IN GENERAL.—The term ‘qualified 

2 institution of higher education’ means an eligi3 ble educational institution (as defined in section 

4 25A(f)(2))— 

5 ‘‘(i) which had at least 500 tuition6 paying students during the preceding tax7 able year, 

8 ‘‘(ii) more than 50 percent of the tui9 tion-paying students of which are located 

10 in the United States, 

11 ‘‘(iii) the aggregate fair market value 

12 of the assets of which at the end of the 

13 preceding taxable year (other than those 

14 assets which are used directly in carrying 

15 out the institution’s exempt purpose) is at 

16 least $500,000 per student of the institu17 tion, and 

18 ‘‘(iv) of which less than the applicable 

19 percentage of undergraduates enrolled dur20 ing the taxable year receive Federal Pell 

21 Grants under section 401 of the Higher 

22 Education Act of 1965 (20 U.S.C. 1070a). 

23 ‘‘(B) STUDENTS.—For purposes of sub24 paragraph (A), the number of students of an 

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1 mining the number of students at a particular 

2 location) shall be based on the daily average 

3 number of full-time students attending such in4 stitution (with part-time students taken into ac5 count on a full-time student equivalent basis). 

6 ‘‘(C) APPLICABLE PERCENTAGE.—For 

7 purposes of subparagraph (A), the applicable 

8 percentage is— 

9 ‘‘(i) in the case of taxable years begin10 ning in 2018, 28 percent, 

11 ‘‘(ii) in the case of taxable years be12 ginning in 2019, 29 percent, 

13 ‘‘(iii) in the case of taxable years be14 ginning in 2020, 30 percent, 

15 ‘‘(iv) in the case of taxable years be16 ginning in 2021, 31 percent, 

17 ‘‘(v) in the case of taxable years be18 ginning in 2022, 32 percent, and 

19 ‘‘(vi) in the case of taxable years be20 ginning after 2022, 33 percent. 

21 ‘‘(2) UNDISTRIBUTED REQUIRED PAYOUT.— 

22 With respect to a qualified institution of higher edu23 cation for a taxable year— 

24 ‘‘(A) IN GENERAL.—The term ‘undistrib25 uted required payout’ means, as of a date on 


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1 which a tax is imposed under subsection (a) or 

2 (b), the amount by which— 

3 ‘‘(i) the required payout for such tax4 able year, exceeds 

5 ‘‘(ii) the grants to working-family stu6 dents made by such institution before such 

7 date out of such required payout. 

8 ‘‘(B) DE MINIMIS EXCEPTION.—If an un9 distributed required payout with respect to a 

10 qualified institution of higher education for a 

11 taxable year is not more than 1 percent of the 

12 required payout with respect to such institution 

13 for such taxable year (or, if less, $250,000), 

14 subsections (a), (b), and (c) shall not apply 

15 with respect to such undistributed required pay16 out. 

17 ‘‘(C) PROGRESSIVE GRANT REQUIRE18 MENT.—A grant out of a required payout for a 

19 working-family student for an academic period 

20 shall only qualify for the purposes of subpara21 graph (A)(ii) to the extent that the amount of 

22 grants by such institution for such student for 

23 such academic period is not more than the least 

24 amount of grants given by such institution out 

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1 riod to any degree-seeking working-family stu2 dent with a lower household income than such 

3 student. For purposes of the preceding sen4 tence, grant amounts shall be determined on a 

5 per credit basis. 

6 ‘‘(3) REQUIRED PAYOUT.—The term ‘required 

7 payout’ means, with respect to any qualified institu8 tion of higher education for any taxable year, an 

9 amount equal to 25 percent of the average net in10 vestment income with respect to such institution for 

11 such taxable year and the preceding 6 taxable years. 

12 ‘‘(4) NET INVESTMENT INCOME.—The term 

13 ‘net investment income’ means, with respect to any 

14 qualified institution of higher education for any tax15 able year, the excess (if any) of— 

16 ‘‘(A) the aggregate fair market value of all 

17 endowments of such institution (determined as 

18 of the close of the preceding taxable year), 

19 minus any contributions to such endowments 

20 received during such preceding taxable year, 

21 plus any spending from such endowments dur22 ing such preceding taxable year, over 

23 ‘‘(B) the aggregate fair market value of all 

24 endowments of such institution (determined as 


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1 of the close of the second preceding taxable 

2 year). 

3 ‘‘(5) GRANT FOR A WORKING-FAMILY STU4 DENT.— 

5 ‘‘(A) IN GENERAL.—The term ‘grant for a 

6 working-family student’ means, with respect to 

7 a qualified institution of higher education, a 

8 grant by such institution for all or a portion of 

9 the cost of attendance to a working-family stu10 dent attending such institution. 

11 ‘‘(B) WORKING-FAMILY STUDENT.—The 

12 term ‘working-family student’ means, with re13 spect to a qualified institution of higher edu14 cation for a taxable year, an individual— 

15 ‘‘(i) who is enrolled (part-time or full16 time) as an undergraduate student in such 

17 institution during an academic period be18 ginning in such taxable year; and 

19 ‘‘(ii) whose household income for the 

20 taxable year does not exceed 600 percent 

21 of an amount equal to the poverty line for 

22 a family of the size involved. 

23 ‘‘(6) COST OF ATTENDANCE.—The term ‘cost of 

24 attendance’, with respect to a student attending a 

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1 demic period, has the meaning given such term in 

2 section 472 of the Higher Education Act of 1965 

3 (20 U.S.C. 1087ll), less any grants for cost of at4 tendance (as defined in such section) received by 

5 such student from any person other than such insti6 tution during such academic period. 

7 ‘‘(7) FAFSA SAFE HARBOR.—For purposes of 

8 this section, a qualified institution of higher edu9 cation may rely on data from Free Applications for 

10 Federal Student Aid authorized under section 

11 483(a) of the Higher Education Act of 1965 (20 

12 U.S.C. 1092(a)). 

13 ‘‘(8) FAMILY SIZE; HOUSEHOLD INCOME; POV14 ERTY LINE.—The terms ‘family size’, ‘household in15 come’, and ‘poverty line’ have the respective mean16 ings given such terms in section 36B(d). In the case 

17 of any student with respect to whom a deduction is 

18 allowable under section 151 to another taxpayer, the 

19 terms ‘family size’ and ‘household income’ shall be 

20 determined with respect to such other taxpayer. 

21 ‘‘(9) ASSETS AND NET INVESTMENT INCOME OF

22 RELATED ORGANIZATIONS.— 

23 ‘‘(A) IN GENERAL.—For purposes of para24 graphs (1)(A)(iii) and (4), assets and net in25 vestment income of any related organization 


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1 with respect to an educational institution shall 

2 be treated as assets and net investment income, 

3 respectively, of the educational institution, ex4 cept that— 

5 ‘‘(i) no such amount shall be taken 

6 into account with respect to more than 1 

7 educational institution, and 

8 ‘‘(ii) unless such organization is con9 trolled by such institution or is described 

10 in section 509(a)(3) with respect to such 

11 institution for the taxable year, assets and 

12 net investment income which are not in13 tended or available for the use or benefit 

14 of the educational institution shall not be 

15 taken into account. 

16 ‘‘(B) RELATED ORGANIZATION.—For pur17 poses of this subsection, the term ‘related orga18 nization’ means, with respect to an educational 

19 institution, any organization which— 

20 ‘‘(i) controls, or is controlled by, such 

21 institution, 

22 ‘‘(ii) is controlled by one or more per23 sons which also control such institution, or 

24 ‘‘(iii) is a supported organization (as 

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1 zation described in section 509(a)(3), dur2 ing the taxable year with respect to such 

3 institution.’’. 

4 (b) SPECIAL RULES RELATING TO DEDUCTION OF

5 RESTRICTED AND UNRESTRICTED GIFTS.—Section 170 

6 of such Code is amended— 

7 (1) by redesignating subsection (p) as sub8 section (q); and 

9 (2) by inserting after subsection (o) the fol10 lowing new subsection: 

11 ‘‘(p) SPECIAL RULE FOR GIFTS TO INSTITUTIONS OF

12 HIGHER EDUCATION.— 

13 ‘‘(1) IN GENERAL.—In the case of contributions 

14 by an individual to a institution of higher education 

15 (as defined in subsection section 4968(e))— 

16 ‘‘(A) if the use of any such amounts are 

17 restricted by the taxpayer to a use other than 

18 scholarships, no deduction shall be allowed for 

19 so much of the aggregate of such restricted con20 tributions for the taxable year as exceeds 

21 $5,000, 

22 ‘‘(B) if the use of such amounts are unre23 stricted, the amount taken into account under 

24 this section for the taxable year shall include an 


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1 allowance equal to 25 percent of the aggregate 

2 amount of such unrestricted contributions, and 

3 ‘‘(C) if the use of any such amounts are 

4 restricted by the taxpayer to scholarships for 

5 working-family students (as defined in section 

6 4968(e)(5)(B)), the amount taken into account 

7 under this section for the taxable year shall in8 clude an allowance equal to 50 percent of the 

9 aggregate amount of such scholarship restricted 

10 contributions. 

11 Any such allowance shall be taken into account 

12 under this section in the same manner as the con13 tribution with respect to which such allowance was 

14 determined, except that the limitation with respect 

15 to an individual for any taxable year under sub16 section (b)(1)(A) shall be increased by the amount 

17 of any allowances allowed under paragraphs (B) or 

18 (C) for such taxable year. 

19 ‘‘(2) INSTITUTION OF HIGHER EDUCATION.— 

20 For purposes of this subsection, the term ‘edu21 cational institution’ means an institution that is de22 scribed in section 101 of the Higher Education Act 

23 of 1965 (20 U.S.C. 1001).’’. 

24 (c) REQUIREMENTS FOR TAX EXEMPT STATUS OF

25 QUALIFIED INSTITUTIONS OF HIGHER EDUCATION.— 


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1 Section 501 of the Internal Revenue Code of 1986 is 

2 amended by adding at the end the following new sub3 section: 

4 ‘‘(s) ADDITIONAL REQUIREMENTS FOR INSTITU5 TIONS OF HIGHER EDUCATION.— 

6 ‘‘(1) FIVE-YEAR PLAN.—An institution of high7 er education (as defined in section 170(p)(2)) shall 

8 not be treated as described in subsection (c)(3) un9 less the institution submits to the Secretary (at such 

10 time and in such manner as the Secretary shall pre11 scribe) 5-year plans which— 

12 ‘‘(A) are designed to ensure the percentage 

13 increase in the cost of education for any aca14 demic year at such institution (as compared to 

15 the preceding academic year) will not exceed 

16 the percentage increase in the Consumer Price 

17 Index for all-urban consumers published by the 

18 Department of Labor (for the same periods), 

19 ‘‘(B) in the case of any plan after the first 

20 5-year plan submitted under this paragraph, 

21 describe any failure to achieve the goals of the 

22 preceding 5-year plan and any steps being 

23 taken to address such failures, 


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1 ‘‘(C) identify areas in which costs are pro2 jected to increase the most and the measures 

3 being taken to address such cost increases, and 

4 ‘‘(D) contain such other information as the 

5 Secretary determines is necessary for carrying 

6 out the purposes of this subsection. 

7 ‘‘(2) REPORT.—The plan shall include a report 

8 which includes information detailing salaries paid by 

9 the institution, any certified audited financial state10 ment, any fees paid by the institution for investment 

11 management services, the institutions’s long-term 

12 spending plan, the institution’s investments (includ13 ing the risk profile and expected rate of return of 

14 such investments), and the institution’s 5 largest 

15 spending categories, the amounts spent within those 

16 categories, and the 5 items within each category on 

17 which the most is spent. The institution shall make 

18 such plan publicly available and include such plan on 

19 the institution’s website. 

20 ‘‘(3) EDUCATIONAL GUARANTEE.—A qualified 

21 institution of higher education (as defined in section 

22 4968(e)(1)) shall not be treated as described in sub23 section (c)(3) unless— 

24 ‘‘(A) at least 20 percent of the students of 

25 such institution are eligible to receive a Federal 


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1 Pell Grant under section 401 of the Higher 

2 Education Act of 1965 for the academic year 

3 beginning in the taxable year, and 

4 ‘‘(B) at least 50 percent of the students of 

5 such institution have household income for the 

6 taxable year that does not exceed 600 percent 

7 of an amount equal to the poverty line for a 

8 family of the size involved (determined under 

9 rules similar to the rules of section 

10 4968(e)(8)).’’. 

11 (d) CLERICAL AMENDMENT.—The table of sub12 chapters for chapter 42 of such Code is amended by add13 ing at the end the following new item: 

‘‘SUBCHAPTER H. FAILURE BY CERTAIN INSTITUTIONS OF HIGHER EDUCATION

TO MAKE CERTAIN PAYOUTS’’. 

14 (e) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years beginning after 

16 the date of enactment of this Act. 

17 SEC. 3. EXCISE TAXES ON RESTRICTED DONATIONS TO 

18 HIGHER EDUCATION INSTITUTIONS. 

19 (a) DONOR ADVISED FUNDS.—Section 4966 of the 

20 Internal Revenue Code of 1986 is amended by adding at 

21 the end the following new subsection: 

22 ‘‘(e) SPECIAL RULE FOR UNRESTRICTED DONATIONS

23 TO QUALIFIED INSTITUTIONS OF HIGHER EDUCATION.— 


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1 ‘‘(1) IN GENERAL.—In the case of any re2 stricted distribution from a donor advised fund to an 

3 institution of higher education (as defined in section 

4 170(p)(2))— 

5 ‘‘(A) such distributions shall be treated as 

6 a taxable distribution for purposes of this sec7 tion, and 

8 ‘‘(B) subsection (a) shall be applied by 

9 substituting ‘100 percent’ for ‘20 percent’. 

10 ‘‘(2) RESTRICTED DISTRIBUTION.—For pur11 poses of this subsection, the term ‘restricted dis12 tribution’ means a distribution restricted by the 

13 fund to a use other than scholarships.’’. 

14 (b) PRIVATE FOUNDATIONS.—Section 4945 of such 

15 Code is amended by adding at the end the following new 

16 subsection: 

17 ‘‘(j) SPECIAL RULE FOR UNRESTRICTED DONATIONS

18 TO QUALIFIED INSTITUTIONS OF HIGHER EDUCATION.— 

19 ‘‘(1) IN GENERAL.—In the case of any re20 stricted distribution from a private foundation to an 

21 institution of higher education (as defined in section 

22 170(p)(2))— 

23 ‘‘(A) such distribution shall be treated as 

24 a taxable expenditure for purposes of this sec25 tion, and 


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1 ‘‘(B) subsection (a)(1) shall be applied by 

2 substituting ‘100 percent’ for ‘20 percent’. 

3 ‘‘(2) RESTRICTED DISTRIBUTION.—For pur4 poses of this subsection, the term ‘restricted dis5 tribution’ means a distribution restricted by the 

6 foundation to a use other than scholarships.’’. 

7 (c) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to distributions after the date of 

9 the enactment of this Act. 

10 SEC. 4. REPORT ON NET TUITION FOR CERTAIN INSTITU11 TIONS OF HIGHER EDUCATION. 

12 (a) IN GENERAL.—Subpart B of part III of sub13 chapter A of chapter 61 of the Internal Revenue Code of 

14 1986 is amended by adding at the end the following new 

15 section: 

16 ‘‘SEC. 6050X. DISCLOSURES REQUIRED WITH RESPECT TO 

17 NET TUITION. 

18 ‘‘(a) IN GENERAL.—Each institution of higher edu19 cation (as defined in section 170(p)(2)) shall for the tax20 able year make a return to the Secretary which contains— 

21 ‘‘(1) the amount of the excess (if any), for each 

22 working-family student (as defined in such section) 

23 at such institution, of— 

24 ‘‘(A) the cost of attendance at such institu25 tion (as defined in section 472), over 


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1 ‘‘(B) the grants from such institution re2 ceived by such student, and 

3 ‘‘(2) the number of students enrolled at such 

4 institution on the first day of the taxable year. 

5 ‘‘(b) FORM AND MANNER.—Such return shall be 

6 made at such time, and in such form and manner, as the 

7 Secretary may by regulation prescribe.’’. 

8 (b) CLERICAL AMENDMENT.—The table of sections 

9 for subpart B of part III of subchapter A of chapter 61 

10 of such Code is amended by adding at the end the fol11 lowing new item: 

‘‘Sec. 6050X. Disclosures required with respect to net tuition.’’. 

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to taxable years beginning after 

14 the date of the enactment of this Act. 

15 SEC. 5. FEDERAL PELL GRANT PROGRAM FUNDING. 

16 Section 401(b)(7)(iv) of the Higher Education Act of 

17 1965 (20 U.S.C. 1070a(b)(7)(iv))— 

18 (1) in subclause (XI), by striking the period at 

19 the end and inserting a comma; and 

20 (2) by inserting at the end the following flush 

21 left text: ‘‘, which, beginning with fiscal year 2019, 

22 for each fiscal year for which amounts made are 

23 made available pursuant to subclauses (IX) through 

24 (XI), the amount made available for the fiscal year 

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1 crease in receipts to the Treasury during the pre2 ceding fiscal year attributable to the taxes imposed 

3 by section 4968 of the Internal Revenue Code of 

4 1986.’’. 

5 SEC. 6. CONSUMER INFORMATION. 

6 Section 132(i)(1) of the Higher Education Act of 

7 1965 (20 U.S.C. 1015a(i)(1)) is amended by adding at 

8 the end the following: 

9 ‘‘(AA) Total number of employees of the 

10 institution in charge of managing or advising 

11 the endowment or investments of the institu12 tion. 

13 ‘‘(BB) Annual salary and performance14 based compensation of each individual employed 

15 by the institution that is involved in manage16 ment or advising the endowment. 

17 ‘‘(CC) The total expenses for managing the 

18 endowment of the institution, disaggregated— 

19 ‘‘(i) by office space and equipment, 

20 and any other expenses not described in 

21 clause (ii); and 

22 ‘‘(ii) by outside management and per23 formance fees by category. 


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1 ‘‘(DD) Total institutional aid provided to 

2 students by the institution and the total 

3 amount of such aid, disaggregated— 

4 ‘‘(i) by institutional aid provided using 

5 endowment funds; 

6 ‘‘(ii) by institutional aid provided 

7 using non-endowment funds; 

8 ‘‘(iii) by the type of such aid (such as 

9 merit, need, or athletic); and 

10 ‘‘(iv) by the income categories de11 scribed in paragraph (6). 

12 ‘‘(EE) The number of students whose par13 ents and grandparents have provided the insti14 tution— 

15 ‘‘(i) more than $100,000 during the 

16 4-year period beginning on the day before 

17 the student’s first date of attendance 

18 through the graduation, transfer, or expul19 sion of the student; or 

20 ‘‘(ii) more then $500,000 in the ag21 gregate. 

22 ‘‘(FF) The number of students whose par23 ent or grandparent (biological, custodial, step24 parent etc) graduated from the institution.’’. 

Æ 


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