White House Regulatory Office Reviews Endowment Tax

The White House’s Office of Information and Regulatory Affairs has taken the so-called endowment tax under review, according to the regulatory review office’s website.

The endowment tax is a 1.4% excise levy on the net investment income of high-endowment private colleges and universities that was included in the Tax Cuts and Jobs Act of 2017.

The tax applies to private college or universities that have at least 500 full-time tuition-paying students—more than half of whom are located in the United States—and that have assets other than those used in its charitable activities worth at least $500,000 per student. According to the IRS, an estimated 40 or fewer institutions are affected by the endowment tax.

The excise tax is, not surprisingly, universally unpopular among the nation’s universities and colleges, particularly the ones with the larger endowments that will be affected the most by it.

“The administration proposed regulations on this tax in July 2019 and we understand that it is now the final regulations that are under final review,” a spokesperson for the National Association of College and University Business Officers (NACUBO) told CIO. “NACUBO commented on the proposed regulations in 2019 and is eager to see the final rules.”

For more stories like this, sign up for the CIO Alert newsletter. 

In its comments to the proposal, the NACUBO said it is “strongly opposed to this tax,” and called it “an unprecedented and damaging attack on the tax-exempt status of higher education institutions and their students.” NACUBO said the tax will diminish charitable resources available for financial aid, research, academic support, public service, and innovation.

“As public charities and educational entities, colleges and universities dedicate their efforts and resources to the public good through education and scholarship,” NACUBO said. “The NII [net investment income] creates a new tax liability for private institutions that, by definition, will reduce resources available to improve access and invest in scholarship.”

Stanford University, which had an endowment tax bill that was estimated to be $42.9 million, said the endowment tax will hurt the university’s financial aid.

“Over time, the tax will reduce funds available from the endowment to support financial aid and other essential support for our core academic mission,” Stanford University spokesperson Dee Mostofi wrote in a statement to The Stanford Daily in February. “Stanford strongly opposes the tax and is actively working on efforts to repeal or limit the tax.”

And Harvard University and its $40.9 billion endowment had estimated that it would have to pay nearly $50 million to satisfy the excise tax for fiscal year 2019.

“Less money is now available for the university to maintain financial aid, which totaled $193 million for undergraduates this year,” wrote Thomas Hollister and Paul Finnegan, Harvard’s vice president for finance and treasurer, respectively, in Harvard’s annual financial report.

According to think tank the Tax Policy Center, the endowment tax is only expected to generate about $200 million a year, which it said is not a significant amount of revenue for the federal government, but could set a precedent for imposing further taxes on university endowments.

IRS Issues Endowment Tax Regulations

Endowments Unharmed by Tax Law Changes…So Far

Tags: 1.4% levy, Endowment Tax, excise tax, NACUBO, National Association of College and University Business Officers, White House

A second federal contracting firm executive has pleaded guilty to bribery conspiracy charges involving his business partner and a senior contracting official with the Pension Benefit Guaranty Corporation (PBGC).

James Girardi, the chief operating officer (COO) of an unnamed government contracting firm, pleaded guilty to one count of conspiracy to bribe a public official before a US district judge of the Eastern District of Virginia. In May, Jeffrey Donahue, the PBGC’s former director of procurement, and Nadeem Ansari, the CEO and president of Girardi’s firm, also pleaded guilty to bribery offenses.

Donahue served as a supervisory contract administrator with the PBGC and then as director of the procurement department from March 2014 to February 2020.

According to court documents, from at least 2015 through August 2017, Donahue solicited and received cash payments and the promise of a job valued at $1 million from Ansari, which was done with Girardi’s knowledge and agreement. In exchange, Donahue agreed to help Ansari and Girardi’s company land lucrative PBGC contracts.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Donahue approached Ansari in 2015 and offered to help his and Girardi’s new company win a PBGC contract that was worth approximately $55 million, in exchange for a future job with the company.

Among other things, Donahue provided Ansari with sample bid proposals, and helped draft, review, and edit the company’s bid proposal. He also revealed labor pricing estimates. And, when the company failed to secure the contract, Donahue helped Ansari draft the company’s bid protest. Girardi admitted he was aware of Ansari’s arrangement with Donahue.

Donahue proposed another deal with Ansari in 2016 in which Donahue would receive up to $125,000 from Ansari and his company in exchange for directing a contract to their firm. Girardi was also aware of this arrangement with Donahue, according to court documents. Ansari and Girardi’s company was eventually awarded the contract by the PBGC, which resulted in the company receiving total payments of approximately $3.29 million.

The Justice Department said Donahue helped the company win the contract by providing sensitive, non-public information and work product to Ansari, providing guidance for contract pricing, and adjusting the terms of the contract to align with the qualifications of the company’s personnel.

Donahue received at least $48,000 in cash, plus additional gifts. He and Ansari also took measures to hide their illicit activities and their communications with each other, including using separate, dedicated cellphones and email accounts and communicating through encrypted software.

The bribery charge against Girardi is punishable by up to 15 years in prison, and his sentencing is scheduled for Jan. 6. Sentencing for Donahue and Ansari is scheduled for Sept. 11.