Increased tax on net investment income of certain educational institutions with large endowments that increase tuition

Section 4968 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (e) Increased tax on certain applicable educational institutions that increase tuition (1) In general In the case of any disqualified large applicable educational institution for any taxable year beginning after December 31, 2025, subsection (a) shall be applied by substituting 25 percent for 1.4 percent for such taxable year. (2) Disqualified large applicable educational institution For purposes of this subsection, the term disqualified large applicable educational institution means, with respect to any taxable year, any institution if— (A) such institution is an applicable educational institution for such taxable year, (B) the average tuition charged to full-time students for semesters during such taxable year exceeds the inflation adjusted base amount for such taxable year, and (C) the aggregate fair market value (determined as of the end of the preceding taxable year) of the assets of such institution (other than those assets which are used directly in carrying out the institution’s exempt purpose) equal or exceeds $2,500,000,000. (3) Inflation adjusted base amount For purposes of this subsection— (A) In general The term inflation adjusted base amount means, with respect to any applicable education institution for any taxable year which begins in any calendar year, the sum of— (i) the base amount of such institution, plus (ii) the product of— (I) such base amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2024 for calendar year 2016 in subparagraph (A)(ii) thereof. (B) Base amount The term base amount means, with respect any applicable educational institution, the average tuition charged to specified students for semesters during calendar year 2025. (4) Application to new institutions In the case of any applicable educational institution not in existence at all times during calendar year 2025— (A) the base amount with respect to such institution shall be determined with respect to the first full calendar year for which such institution is in existence, (B) the inflation adjusted base amount shall be determined by using the calendar year preceding such first full calendar year as the year substituted in paragraph (3)(A)(ii)(II), and (C) paragraph (1) shall not apply to any taxable year beginning before the end of such first full calendar year. Notwithstanding the preceding sentence, if the average tuition charged by any applicable educational institution to specified students during the first full calendar year for which such institution is in existence is higher than such average for any of the 3 succeeding calendar years, the base amount and inflation adjusted base amount with respect to such institution shall be determined in such manner as the Secretary may provide..