The final regulations adopt the proposed regulations issued in 2019 (which incorporated the provisions of Notice 2018-55 that provided early guidance on the new tax imposed by the TCJA) as modified in response to comments provided. Highlights of the changes follow:
The final regulations are effective for tax years beginning after their publication in the Federal Register, which is still pending as of the date of this article. According to the preamble to the final regulations, for tax years beginning on or before the date the final regulations are published in the Federal Register, institutions will be treated as in compliance if they use a reasonable, good faith interpretation of the statute.
The changes in the final regulations, while not dramatic, could make a difference in who owes the tax and how much they owe. Educational institutions should work with their tax advisers to evaluate the final regulations and their potential impact. Institutions subject to the Section 4968 excise tax, and those close to the threshold for being subject to the tax, should review their net investment income tracking methods and revise them, if necessary, to comply with the final regulations. As institutions are analyzing the effect of the final rules, they should consider filing an amended Form 4720, “Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the Internal Revenue Code,” to incorporate favorable provisions of the rules.
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