United States

IRS to issue guidance on private colleges and universities excise tax

Proposed regulations to clarify calculation of net investment income


The IRS released Notice 2018-55 announcing their intent to issue proposed regulations providing clarification regarding the calculation of net investment income for purposes of section 4968(c) of the Internal Revenue Code.

Notice 2018-55 provides:

Similar to the rules found in section 4940(c), the Treasury Department and the IRS intend to propose regulations stating that, in the case of property held by an applicable educational institution on December 31, 2017, and continuously thereafter to the date of its disposition, basis of such property for determining gain shall be deemed to be not less than the fair market value of such property on December 31, 2017, plus or minus all adjustments after December 31, 2017, and before the date of disposition consistent with the regulations under section 4940(c). In addition, for purposes of determining loss, basis rules that are consistent with the regulations under section 4940(c) will apply.”

In the notice it states that colleges and universities may rely on this provision “until further guidance is issued”.

The rules for netting of capital gains and losses are also highlighted in Notice 2018-55. It is stated in the notice that further guidance regarding capital gains and losses will be similar to the rules in section 4940(c)(4)(C) whereby capital losses are only permitted to be used to the extent of capital gains with no capital loss carryforwards or carrybacks permitted. It is further expected that with respect to related organizations (described in section 4968(d)(2)), overall net losses from sales or other dispositions of property in one related organization (or from the applicable educational institution) will be allowed to offset overall net gains from such sales or other dispositions from other related organizations (or from the applicable educational institution).

Written comments on the issues addressed in Notice 2018-55, including comments on what other guidance under section 4968(c) is needed, are requested and are due by September 6, 2018.



Bob Billig
National Practice Leader

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