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Colleges Could Benefit From Credits in COVID-19 Relief

Posted on Nov. 10, 2020

Nonprofit colleges and universities could benefit from tax credits likely to appear in any COVID-19 relief legislation Congress might consider, according to a former congressional tax committee staff member.

A COVID-19 relief bill would almost certainly include expansion of the employee retention tax credit, said Rick Grafmeyer, a former deputy chief of staff for the Joint Committee on Taxation who is now with Capitol Tax Partners.

“You’ll have a retention credit expansion, which will help if you’re still paying people but haven’t brought them back on campus yet,” Grafmeyer told higher education representatives during a November 5 National Association of College and University Business Officers (NACUBO) webcast.

Personal protective equipment credits probably would be in the bill as well, Grafmeyer said. “You’ll get a tax credit that would be refundable that you could use when you’re trying to keep your campuses safe,” he said. “That’s a big deal.”

Credits for personal protective equipment have been included in Republican-sponsored COVID relief bills introduced over the past several months. And bills from both parties have included expansions of the employee retention tax credit that was originally enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136).

NACUBO’s Liz Clark noted that public colleges and universities have been excluded from some COVID-19 relief credits, and she asked if Congress might make the credits available to public higher education institutions.

Although it’s possible the credits could be expanded to cover public colleges, it would be “a hard fight” because the Senate would likely tell them to look to their states for the money, Grafmeyer said.

“I do believe they would say, ‘If you need more money, go to your state. They’re going to get an allocation of state and local money; try to get it from them,’” Grafmeyer explained.

Congressional leaders remain far apart on how much to spend in a potential stimulus bill.

Regulatory Outlook

NACUBO’s Mary Bachinger asked about the status of final regulations under section 512(a)(6) on unrelated business taxable income calculations and final section 4960 regs on executive compensation.

Grafmeyer responded that Treasury reportedly intends to submit both sets of regs for Office of Management and Budget review by mid-December.

“Realistically, we expect to see both of those regs out to . . . OMB by December 11,” he said. “I think the plan is to try to have them out a little before then.”

If that deadline isn’t met, Grafmeyer added, finalization of the regs is “not going to be happening until the Biden administration takes over.” If the Biden administration doesn’t like the regs, it will have to repropose them, “and that takes a lot of time,” he said.

The proposed section 512(a)(6) regulations (REG-106864-18) were released in April, while the proposed section 4960 regs (REG-122345-18) were released in June.

Grafmeyer said he thinks a Biden administration would eliminate or substantially scale back the OMB approval process for new Treasury regulations.

Addressing DAFs, Endowments

When asked about possible tax initiatives from a Biden administration that would directly affect colleges and universities, Grafmeyer said he could see a Biden administration issuing regulations on donor-advised funds.

“Other than that, on the horizon, everything is going to have to be a compromise,” Grafmeyer said. “It’s really difficult to make a prediction right now about what could happen. I really need to see . . . who gets appointed to the Biden administration, who are the key people in the White House as well as in the Treasury Department . . . because that’ll drive it.”

Clark noted that the IRS and Treasury recently published final regs on section 4968 (T.D. 9917), a Tax Cuts and Jobs Act provision that taxes the net investment income of some private colleges and universities. She expressed concern that policymakers still don’t understand how endowments are used, and she asked about “endowment-related lawmaking” in the coming months on Capitol Hill.

Grafmeyer responded that Congress will likely keep pressing higher education institutions to use more of their endowments to meet expenses, especially during the COVID-19 pandemic.

“There’s going to continue to be the [view that] you should be paying out more from your endowments to cover the costs of your universities above and beyond what you’re currently paying,” Grafmeyer said. “I see that as a constant fight, and I see it as a constant fight to say, ‘If you’re not paying out enough, then I think we need to tax you more.’”

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