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 endow-
ment 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 Speak-
er, in each case for consideration of such provisions as fall within the ju-
risdiction 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 Representa-
tives 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’’. 
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SEC. 2. EXCISE TAX ON UNDISTRIBUTED REQUIRED PAY-
OUTS FROM ENDOWMENTS OF CERTAIN IN-
STITUTIONS 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 Institu-
tions of Higher Education to Make Cer-
tain 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 undistrib-
uted required payout as of such day. 
‘‘(b) ADDITIONAL TAX.—In any case in which an ini-
tial tax is imposed under subsection (a) on an undistrib-
uted 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 
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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
CONTRIBU-
TIONS.— 
‘‘(1) IN GENERAL.—No deduction shall be al-
lowed 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 contribu-
tion to an organization during a contribution sus-
pension period. 
‘‘(2) CONTRIBUTION
SUSPENSION
PERIOD.— 
For purposes of ths subsection, the term ‘contribu-
tion 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. 
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‘‘(3) NOTICE OF SUSPENSION.—If the deduct-
ibility of contributions is suspended under this sub-
section, the Internal Revenue Service shall update 
the listings of tax-exempt organizations, and the In-
ternal Revenue Service and such organization shall 
publish appropriate notice to the public of such sus-
pension 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 quali-
fied 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 sub-
section) 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 im-
posed under this section on the undistributed required 
payout for such taxable year. 
‘‘(e) DEFINITIONS AND SPECIAL RULE.—For pur-
poses of this section— 
‘‘(1) QUALIFIED INSTITUTION OF HIGHER EDU-
CATION.— 
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‘‘(A) IN
GENERAL.—The term ‘qualified 
institution of higher education’ means an eligi-
ble educational institution (as defined in section 
25A(f)(2))— 
‘‘(i) which had at least 500 tuition- 
paying students during the preceding tax-
able year, 
‘‘(ii) more than 50 percent of the tui-
tion-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 institu-
tion, and 
‘‘(iv) of which less than the applicable 
percentage of undergraduates enrolled dur-
ing 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 sub-
paragraph (A), the number of students of an 
institution (including for purposes of deter-
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demic 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 at-
tendance (as defined in such section) received by 
such student from any person other than such insti-
tution during such academic period. 
‘‘(7) FAFSA SAFE HARBOR.—For purposes of 
this section, a qualified institution of higher edu-
cation 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; POV-
ERTY LINE.—The terms ‘family size’, ‘household in-
come’, and ‘poverty line’ have the respective mean-
ings 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 para-
graphs (1)(A)(iii) and (4), assets and net in-
vestment income of any related organization 
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with respect to an educational institution shall 
be treated as assets and net investment income, 
respectively, of the educational institution, ex-
cept that— 
‘‘(i) no such amount shall be taken 
into account with respect to more than 1 
educational institution, and 
‘‘(ii) unless such organization is con-
trolled 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 in-
tended or available for the use or benefit 
of the educational institution shall not be 
taken into account. 
‘‘(B) RELATED ORGANIZATION.—For pur-
poses of this subsection, the term ‘related orga-
nization’ 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 per-
sons which also control such institution, or 
‘‘(iii) is a supported organization (as 
defined in section 509(f)(3)), or an organi-
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zation described in section 509(a)(3), dur-
ing 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 sub-
section (q); and 
(2) by inserting after subsection (o) the fol-
lowing 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 con-
tributions for the taxable year as exceeds 
$5,000, 
‘‘(B) if the use of such amounts are unre-
stricted, the amount taken into account under 
this section for the taxable year shall include an 
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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 in-
clude 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 con-
tribution with respect to which such allowance was 
determined, except that the limitation with respect 
to an individual for any taxable year under sub-
section (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 ‘edu-
cational institution’ means an institution that is de-
scribed 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.— 
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Section 501 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new sub-
section: 
‘‘(s) ADDITIONAL REQUIREMENTS
FOR INSTITU-
TIONS OF HIGHER EDUCATION.— 
‘‘(1) FIVE-YEAR PLAN.—An institution of high-
er education (as defined in section 170(p)(2)) shall 
not be treated as described in subsection (c)(3) un-
less the institution submits to the Secretary (at such 
time and in such manner as the Secretary shall pre-
scribe) 5-year plans which— 
‘‘(A) are designed to ensure the percentage 
increase in the cost of education for any aca-
demic 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, 
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‘‘(C) identify areas in which costs are pro-
jected 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 state-
ment, any fees paid by the institution for investment 
management services, the institutions’s long-term 
spending plan, the institution’s investments (includ-
ing 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 sub-
section (c)(3) unless— 
‘‘(A) at least 20 percent of the students of 
such institution are eligible to receive a Federal 
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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 sub-
chapters for chapter 42 of such Code is amended by add-
ing 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.— 
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‘‘(1) IN
GENERAL.—In the case of any re-
stricted 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 sec-
tion, and 
‘‘(B) subsection (a) shall be applied by 
substituting ‘100 percent’ for ‘20 percent’. 
‘‘(2) RESTRICTED
DISTRIBUTION.—For pur-
poses of this subsection, the term ‘restricted dis-
tribution’ 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 re-
stricted 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 sec-
tion, and 
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‘‘(B) subsection (a)(1) shall be applied by 
substituting ‘100 percent’ for ‘20 percent’. 
‘‘(2) RESTRICTED
DISTRIBUTION.—For pur-
poses of this subsection, the term ‘restricted dis-
tribution’ 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 INSTITU-
TIONS OF HIGHER EDUCATION. 
(a) IN GENERAL.—Subpart B of part III of sub-
chapter 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 edu-
cation (as defined in section 170(p)(2)) shall for the tax-
able 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 institu-
tion (as defined in section 472), over 
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‘‘(B) the grants from such institution re-
ceived 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 fol-
lowing 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 in-
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crease in receipts to the Treasury during the pre-
ceding 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 institu-
tion. 
‘‘(BB) Annual salary and performance- 
based compensation of each individual employed 
by the institution that is involved in manage-
ment 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 per-
formance fees by category. 
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‘‘(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 de-
scribed in paragraph (6). 
‘‘(EE) The number of students whose par-
ents and grandparents have provided the insti-
tution— 
‘‘(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 expul-
sion of the student; or 
‘‘(ii) more then $500,000 in the ag-
gregate. 
‘‘(FF) The number of students whose par-
ent or grandparent (biological, custodial, step- 
parent etc) graduated from the institution.’’. 
Æ 
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