Yesterday evening, the Senate Finance Committee completed markup of the Tax Cuts and Jobs Act. The committee voted along party lines, 14-12, to approve the proposal. The full Senate is expected to take up the measure the week after Thanksgiving. During yesterday’s markup, Chairman Hatch (R-Utah) introduced an amendment, referred to as Hatch #25, to provide modifications, clarifications, and additions to the chairman’s mark.
The chairman’s modification provided a clarification to the excise tax on private college and university endowments. The proposal, as modified, would impose a 1.4% excise tax on the net investment income of private colleges and universities with more than 500 students and endowment assets in excess of $250,000 per student. In determining whether it meets the endowment asset threshold, an educational institution must include the assets held for it by related organizations that control, are controlled by, are under common control with, or are supported or supporting organizations of, the private colleges and universities. In addition, the net investment income on such assets must be included when computing the tax.
The modified bill includes a transition rule providing that the proposal under section 162(m), expanding the $1 million deduction cap applicable to the compensation of certain public company executives, does not apply to any remuneration under a written binding contract which was in effect on November 2, 2017, and which was not modified thereafter in any material respect. However, no similar transition rule has been added with respect to the corresponding proposal to impose a 20% excise tax on compensation over $1 million paid by tax-exempt organizations. As a result, tax-exempt organizations could face the excise tax on compensation required to be paid out under existing contracts.