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The bill narrows §4968 excise-tax exposure for qualifying religious-affiliated institutions and provides clearer, prospective rules, but shifts potential tax liability onto some nonreligious colleges and raises compliance, governance-pressure, and litigation risks for affected institutions.
Religious-affiliated schools and colleges that meet the bill's founding, governance, and mission criteria will be excluded from the §4968 excise tax, reducing their tax burden.
The bill sets objective criteria (founding date, governance ties, mission) that clarify which institutions qualify for the exclusion, reducing regulatory uncertainty for affected organizations.
The exclusion is applied prospectively to taxable years after 12/31/2025, giving institutions time to adjust governance and compliance practices before the rule takes effect.
Nonreligious private colleges that previously qualified for an exclusion could lose it and face increased §4968 excise tax liability.
Institutions (religious and nonreligious) will incur administrative and legal costs to document compliance with the criteria and obtain Treasury guidance, increasing their operating and compliance expenses.
The governance and appointment tests (e.g., requirement that a portion of board members be clerical or appointed) could pressure institutions to alter governing boards, reducing institutional autonomy and triggering disputes or litigation over qualification.
Based on analysis of 1 section of legislative text.
Exempts qualifying religious institutions from being treated as "applicable educational institutions" for the §4968 excise tax by creating a four-part statutory definition of "qualified religious institution."
Official title: To amend the Internal Revenue Code of 1986 to exempt qualified religious institutions from the excise tax on investment income.
Introduced June 18, 2026 by Mike Kelly · Last progress June 18, 2026
Removes certain religious colleges and other religiously affiliated institutions from the definition of “applicable educational institution” for the excise tax in 26 U.S.C. § 4968, so qualifying religious institutions would not be subject to that tax. It defines a "qualified religious institution" with four tests (founding date, tie to a qualifying religious organization, governance/relationship requirements, and a published religious mission) and sets an effective date for taxable years beginning after December 31, 2025. The bill also directs the Treasury Secretary to issue regulations or guidance by December 31, 2026, implementing the new definition and exclusions. The change alters who is liable for an existing federal excise tax on certain educational endowments by carving out narrowly defined religious entities.