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In a recent explanation of the 2017 Tax Cuts and Jobs Act (TCJA), the nonpartisan Joint Committee on Taxation (JCT) acknowledged that Congress intended the new executive compensation excise tax to apply to all public colleges and universities—but said the law as written does not match that intent.

At the end of each two-year session of Congress, the JCT publishes a “Blue Book,” an explanation of enacted legislation. The Dec. 20, 2018, edition, General Explanation of Public Law 115-97, was widely anticipated because the JCT’s explanation of the TCJA can have implications for the regulatory process as executive branch officials at the IRS and Department of the Treasury continue to issue guidance and rules. Further, the JCT’s analysis can influence the development of legislation to correct or repeal TCJA provisions.

The affirmation that the new excise tax on executive compensation was intended to include all public colleges and universities is a notable clarification. Under the new law, a tax-exempt organization would be subject to a 21-percent excise tax on compensation in excess of $1 million paid to any of its five highest-compensated employees for the tax year. As written, the law applies to private nonprofit higher education institutions and state universities that derive their tax-exempt status from section 115(l). Therefore, public institutions that do not fall under section 115 (deriving their exempt status from a doctrine of implied statutory immunity) are technically currently not covered by the new provision. The Blue Book suggests that a legislative technical correction is needed to apply the provision as intended to all state colleges and universities.

2018 draft legislation from then-Chairman of the House Ways and Means Committee Kevin Brady (R-TX) included language that would have updated the legislation to include all public colleges. It remains unclear, however, if the now-Democratic-led House will pursue this matter. It is also uncertain how, or if, Democrats will attempt to address any TCJA technical corrections.

The “Blue Book” also explains the excise tax based on investment income of private colleges and universities, the repeal of the special rule that provides a charitable deduction of 80 percent of the amount paid for the right to purchase tickets for athletic events, the new unrelated business taxable income tax on the value of employee transportation fringe benefits, and more.


Liz Clark

Vice President, Policy and Research



Mary Bachinger

Director, Tax Policy


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