Researcher ORCID Identifier

0009-0008-0484-4565

Graduation Year

2025

Date of Submission

4-2025

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics-Accounting

Reader 1

Professor Andrew Finley

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© 2025 Ava B Schmitt

Abstract

This thesis examines the response of private colleges and universities subject to the excise tax on net investment income, introduced under the Tax Cuts and Jobs Act of 2017 (TCJA). It seeks to identify tax avoidance behavior within qualifying nonprofit institutions in the form of reduced investment asset sales, as a means to defer income recognition and reduce the size of their tax liability. The research utilizes financial data from the IRS and Form 990 filings to analyze investment asset sales, capital gains and investment management fees within nonprofit organizations using a difference-in-differences regression model. Within a sample of nonprofits that are all educational institutions, results find that institutions subject to the tax have statistically significantly fewer sales of investment assets after the tax was implemented compared to those not subject to the tax. However, these findings do not hold in another sample of nonprofit organizations with investment assets totaling over $650 million. Additionally, capital gains income is not significantly different for tax-affected institutions in the period after the tax. Exploration of colleges and universities tax sensitivity in the form of changes to investment management fees also did not yield any significant results. Limited statistically significant results provide minimal evidence that colleges and universities are tax sensitive and engage in tax avoidance to reduce their tax liabilities. The findings contribute to literature regarding tax avoidance within nonprofit organizations, as well as shed light on behavioral changes within highly endowed institutions following changes in tax policy.

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