26 U.S.C. § 4968 (INTERNAL REVENUE CODE)
§ 4968. Excise tax based on investment income of private colleges and universities
(a) Tax imposed
There is hereby imposed on each applicable educational institution for the taxable year a tax equal to the applicable percentage of the net investment income of such institution for the taxable year.
(b) Applicable percentage
For purposes of this section, the term “applicable percentage” means—
(1) 1.4 percent in the case of an institution with a student adjusted endowment of at least $500,000, and not in excess of $750,000,
(2) 4 percent in the case of an institution with a student adjusted endowment in excess of $750,000, and not in excess of $2,000,000, and
(3) 8 percent in the case of an institution with a student adjusted endowment in excess of $2,000,000.
(c) Applicable educational institution
For purposes of this subchapter, the term “applicable educational institution” means an eligible educational institution (as defined in section 25A(f)(2))—
(1) which had at least 3,000 tuition-paying students during the preceding taxable year,
(2) more than 50 percent of the tuition-paying students of which are located in the United States,
(3) the student adjusted endowment of which is at least $500,000, and
(4) which is not described in the first sentence of section 511(a)(2)(B) (relating to State colleges and universities).
(d) Student adjusted endowment
For purposes of this section, the term “student adjusted endowment” means, with respect to any institution for any taxable year—
(1) the aggregate fair market value of the assets of such institution (determined as of the end of the preceding taxable year), other than those assets which are used directly in carrying out the institution’s exempt purpose, divided by
(2) the number of students of such institution.
(e) Determination of number of students
For purposes of subsections (c) and (d), 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).
(f) Net investment income
For purposes of this section—
(1) In general
Net investment income shall be determined under rules similar to the rules of section 4940(c).
(2) Override of certain regulatory exceptions
(A) Student loan interest
Net investment income shall be determined by taking into account any interest income from a student loan made by the applicable educational institution (or any related organization) as gross investment income.
(B) Federally-subsidized royalty income
(i) In general
Net investment income shall be determined by taking into account any Federally-subsidized royalty income as gross investment income.
(ii) Federally-subsidized royalty income
For purposes of this subparagraph—
(I) In general
The term “Federally-subsidized royalty income” means any otherwise-regulatory-exempt royalty income if any Federal funds were used in the research, development, or creation of the patent, copyright, or other intellectual or intangible property from which such royalty income is derived.
(II) Otherwise-regulatory-exempt royalty income
For purposes of this subparagraph, the term “otherwise-regulatory-exempt royalty income” means royalty income which (but for this subparagraph) would not be taken into account as gross investment income by reason of being derived from patents, copyrights, or other intellectual or intangible property which resulted from the work of students or faculty members in their capacities as such with the applicable educational institution.
(III) Federal funds
The term “Federal funds” includes any grant made by, and any payment made under any contract with, any Federal agency to the applicable educational institution, any related organization, or any student or faculty member referred to in subclause (II).
(g) Assets and net investment income of related organizations
(1) In general
For purposes of subsections (d) and (f), 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—
(A) no such amount shall be taken into account with respect to more than 1 educational institution, and
(B) 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.
(2) Related organization
For purposes of this subsection, the term “related organization” means, with respect to an educational institution, any organization which—
(A) controls, or is controlled by, such institution,
(B) is controlled by 1 or more persons which also control such institution, or
(C) 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.
(h) Regulations
The Secretary shall prescribe such regulations or other guidance as may be necessary to prevent avoidance of the tax under this section, including regulations or other guidance to prevent avoidance of such tax through the restructuring of endowment funds or other arrangements designed to reduce or eliminate the value of net investment income or assets subject to the tax imposed by this section.
(Added Pub. L. 115–97, title I, § 13701(a), Dec. 22, 2017, 131 Stat. 2167; amended Pub. L. 115–123, div. D, title II, § 41109(a), Feb. 9, 2018, 132 Stat. 159; Pub. L. 119–21, title VII, § 70415(a), July 4, 2025, 139 Stat. 221.)
heading: Editorial Notes
heading: Amendments
text: 2025—Pub. L. 119–21 amended section generally. Prior to amendment, section consisted of subsecs. (a) to (d) relating to tax imposed, applicable educational institution, net investment income, and assets and net investment income of related organizations, respectively.
2018—Subsec. (b)(1)(A). Pub. L. 115–123, § 41109(a)(1), inserted “tuition-paying” after “500”.
Subsec. (b)(1)(B). Pub. L. 115–123, § 41109(a)(2), inserted “tuition-paying” after “50 percent of the”.
heading: Statutory Notes and Related Subsidiaries
heading: Effective Date of 2025 Amendment
text: Pub. L. 119–21, title VII, § 70415(c), July 4, 2025, 139 Stat. 223, provided that: “The amendments made by this section [amending this section and section 6033 of this title] shall apply to taxable years beginning after December 31, 2025.”
heading: Effective Date of 2018 Amendment
text: Pub. L. 115–123, div. D, title II, § 41109(b), Feb. 9, 2018, 132 Stat. 159, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.”
heading: Effective Date
text: Pub. L. 115–97, title I, § 13701(c), Dec. 22, 2017, 131 Stat. 2168, provided that: “The amendments made by this section [enacting this section] shall apply to taxable years beginning after December 31, 2017.”