Ivory Tower Tax Act of 2021

II 117TH CONGRESS 1ST SESSION S. 1547 To amend the Internal Revenue Code of 1986 to apply a 1 percent excise tax on large endowments of certain private colleges and universities, to require that such institutions distribute at least 5 percent of large endowments in each taxable year, and for other purposes. IN THE SENATE OF THE UNITED STATES MAY 11, 2021 Mr. COTTON introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to apply a 1 percent excise tax on large endowments of certain private colleges and universities, to require that such institutions distribute at least 5 percent of large endow- ments in each taxable year, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Ivory Tower Tax Act 4 of 2021’’. 5 VerDate Sep 11 2014 00:29 May 27, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1547.IS S1547 kjohnson on DSK79L0C42PROD with BILLS 2 •S 1547 IS SEC. 2. EXCISE TAX ON CERTAIN LARGE PRIVATE COLLEGE 1 AND UNIVERSITY ENDOWMENTS. 2 (a) IN GENERAL.—Subchapter H of chapter 42 of 3 the Internal Revenue Code of 1986 is amended by adding 4 at the end the following new section: 5 ‘‘SEC. 4969. EXCISE TAX ON CERTAIN LARGE PRIVATE COL- 6 LEGE AND UNIVERSITY ENDOWMENTS. 7 ‘‘(a) TAX IMPOSED.—There is hereby imposed on 8 each specified applicable educational institution for the 9 taxable year a tax equal to 1 percent of the aggregate fair 10 market value of the assets of the institution at the end 11 of the preceding taxable year. 12 ‘‘(b) SPECIFIED APPLICABLE EDUCATIONAL INSTI- 13 TUTION.—For purposes of this subchapter, the term ‘spec- 14 ified applicable educational institution’ means any applica- 15 ble educational institution, other than an institution which 16 is religious in nature, the aggregate fair market value of 17 the assets of which at the end of the preceding taxable 18 year (other than those assets which are used directly in 19 carrying out the institution’s exempt purpose) is at least 20 $2,500,000,000. 21 ‘‘(c) OTHER TERMS.—For purposes of this section— 22 ‘‘(1) ASSETS.—The rules of section 4968(d) 23 shall apply. 24 ‘‘(2) STUDENT.—The rules of section 25 4968(b)(2) shall apply.’’. 26 VerDate Sep 11 2014 00:29 May 27, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1547.IS S1547 kjohnson on DSK79L0C42PROD with BILLS 3 •S 1547 IS (b) CLERICAL AMENDMENT.—The table of sections 1 for subchapter H of chapter 42 of the Internal Revenue 2 Code of 1986 is amended by adding at the end the fol- 3 lowing new item: 4 ‘‘Sec. 4969. Excise tax on certain large private college and university endow- ments.’’. (c) EFFECTIVE DATE.—The amendments made by 5 this section shall apply to taxable years beginning after 6 December 31, 2021. 7 SEC. 3. FAILURE TO DISTRIBUTE ENDOWMENT ASSETS. 8 (a) IN GENERAL.—Subchapter H of chapter 42 of 9 the Internal Revenue Code of 1986, as amended by section 10 2, is further amended by adding at the end the following 11 new section: 12 ‘‘SEC. 4970. FAILURE TO DISTRIBUTE ENDOWMENT ASSETS. 13 ‘‘(a) TAX IMPOSED.—There is hereby imposed on the 14 undistributed excess endowment amount of each specified 15 applicable educational institution for the taxable year, 16 which has not been distributed before the first day of the 17 second (or any succeeding) taxable year following such 18 taxable year (if such first day falls within the taxable pe- 19 riod), a tax equal to 30 percent of such undistributed ex- 20 cess endowment amount remaining undistributed at the 21 beginning of such second (or succeeding) taxable year. The 22 tax imposed by this section shall not apply to the undis- 23 tributed excess endowment amount of a specified applica- 24 VerDate Sep 11 2014 00:29 May 27, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1547.IS S1547 kjohnson on DSK79L0C42PROD with BILLS 4 •S 1547 IS ble educational institution to the extent that the founda- 1 tion failed to distribute any amount solely because of an 2 incorrect valuation of assets, if— 3 ‘‘(1) the failure to value the assets properly was 4 not willful and was due to reasonable cause, 5 ‘‘(2) such amount is distributed as qualifying 6 distributions by the institution during the allowable 7 distribution period, 8 ‘‘(3) the institution notifies the Secretary that 9 such amount has been distributed as qualifying dis- 10 tributions to correct such failure, and 11 ‘‘(4) such distribution is treated, by reason of 12 subsection (e)(2), as made out of the undistributed 13 income for the taxable year for which a tax would 14 (except for this paragraph) have been imposed under 15 this subsection. 16 ‘‘(b) ADDITIONAL TAX.—In any case in which an ini- 17 tial tax is imposed under subsection (a) on the undistrib- 18 uted excess endowment amount of any specified applicable 19 educational institution for any taxable year, if any portion 20 of such amount remains undistributed at the close of the 21 taxable period, there is hereby imposed a tax equal to 100 22 percent of the amount remaining undistributed at such 23 time. 24 VerDate Sep 11 2014 00:29 May 27, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1547.IS S1547 kjohnson on DSK79L0C42PROD with BILLS 5 •S 1547 IS ‘‘(c) UNDISTRIBUTED EXCESS ENDOWMENT 1 AMOUNT.—For purposes of this section, the term ‘undis- 2 tributed excess endowment amount’ means, with respect 3 to any specified applicable educational institution for any 4 taxable year as of any time, the amount by which— 5 ‘‘(1) the distributable amount for such taxable 6 year, exceeds 7 ‘‘(2) the qualifying distributions made before 8 such time out of such distributable amount. 9 ‘‘(d) DISTRIBUTABLE AMOUNT.—For purposes of 10 this section, the term ‘distributable amount’ means, with 11 respect to any specified applicable educational institution 12 for any taxable year, an amount equal to 5 percent of the 13 aggregate fair market value of the assets of the institution 14 at the end of the preceding taxable year. The rules of sec- 15 tion 4968(d) shall apply for purposes of this section. 16 ‘‘(e) QUALIFYING DISTRIBUTIONS.—For purposes of 17 this section— 18 ‘‘(1) IN GENERAL.—The term ‘qualifying dis- 19 tribution’ has the meaning given such term in sec- 20 tion 4942(g). 21 ‘‘(2) OTHER RULES.—The rules of subsections 22 (h) and (i) of section 4942 shall apply. 23 VerDate Sep 11 2014 00:29 May 27, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1547.IS S1547 kjohnson on DSK79L0C42PROD with BILLS 6 •S 1547 IS ‘‘(f) TAXABLE PERIOD; ALLOWABLE DISTRIBUTION 1 PERIOD.—The rules of paragraphs (1) and (2) of section 2 4942(j) shall apply for purposes of this section.’’. 3 (b) CLERICAL AMENDMENT.—The table of sections 4 for subchapter H of chapter 42 of the Internal Revenue 5 Code of 1986, as amended by section 2, is further amend- 6 ed by adding at the end the following new item: 7 ‘‘Sec. 4970. Failure to distribute endowment assets.’’. (c) EFFECTIVE DATE.—The amendments made by 8 this section shall apply to taxable years beginning after 9 December 31, 2021. 10 SEC. 4. TRANSFER OF FUNDS. 11 The Secretary of the Treasury (or such Secretary’s 12 delegate) shall from time to time transfer from the general 13 fund of the Treasury to the Secretary of Labor amounts 14 equal to the increase in revenues by reason of the enact- 15 ment of sections 2 and 3, for the purpose of expanding 16 opportunities relating to apprenticeship programs reg- 17 istered under the National Apprenticeship Act. Such funds 18 shall be available until expended to carry out activities 19 under such Act through grants, cooperative agreements, 20 contracts and other arrangements, with States and other 21 appropriate entities. 22 Æ VerDate Sep 11 2014 00:29 May 27, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6301 E:\BILLS\S1547.IS S1547 kjohnson on DSK79L0C42PROD with BILLS