College Foreign Gift Bill Slaps 300% Tax Penalty on Funding from 'Countries of Concern' and Mandates Biennial Audits

This bill overhauls how the government monitors and penalizes colleges that accept money from foreign sources, particularly targeting funding from countries deemed adversarial. Starting 60 days after enactment, the Secretary of Education must begin auditing at least 30 colleges every two years to check their compliance with existing foreign gift reporting rules. More significantly, the bill introduces two massive new federal excise taxes: a 300% tax on income received from a “foreign country of concern,” and a 110% tax on any foreign funding that was not properly reported, regardless of the source. These penalties are designed to be severe, with the 110% tax stacking on top of the 300% tax if the unreported money came from a targeted country.

The New Watch List: Who Gets Audited?

If you’re wondering which schools will get the spotlight, the bill is pretty specific about the audit criteria (Sec. 1). The Secretary of Education isn’t just picking names out of a hat. They have to focus on institutions that meet one or more of these conditions: schools in the top 1% by endowment size (think the biggest, richest universities), those with a history of receiving large foreign gifts, schools that have messed up their reporting before, or those that have publicly acknowledged receiving money from a "foreign entity of concern." This means the biggest players, who have the most international dealings, are squarely in the crosshairs. The audits will look back two years and must detail exactly what was under- or over-reported, by how much, and who the foreign source was. Crucially, the results of these audits must be made public on the Department of Education website, meaning transparency—and public scrutiny—is about to jump significantly.

The Cost of Non-Compliance: 300% Tax Hike

This is where the bill goes from regulatory oversight to financial shockwave (Sec. 2). The bill creates two new sections in the Internal Revenue Code (4969 and 4970) that introduce punitive taxes. The first, Section 4969, targets institutions with more than 500 tuition-paying students (the "applicable institution") that receive income from a "foreign country of concern." The penalty is an excise tax equal to 300% of the income received. To put that in perspective, if a university accepts a $1 million grant from a designated country, they owe the IRS $3 million. This isn't just a fine; it’s designed to make accepting funds from these specific countries financially impossible. It’s a clear signal to universities: sever these ties or face potential financial ruin.

The Unreported Fund Penalty

The second tax, Section 4970, catches any college that fails to properly report any foreign funding required under the existing Higher Education Act Section 117 rules. If an audit catches an "unreported foreign funding" stream, the institution faces a tax of 110% of that amount. So, if a school forgets to report a $500,000 gift from a non-targeted country, they owe $550,000 in tax. The bill makes it clear that this 110% tax is due 180 days after the audit findings are confirmed. The real kicker? If the unreported money came from a "foreign country of concern," both penalties apply, meaning a school could owe a tax equal to 410% (300% + 110%) of the income they received. For colleges, where budgets are already tight and international research partnerships are common, this creates an enormous compliance risk. Even a minor, accidental failure to report could trigger a multi-million-dollar tax bill that could destabilize an institution’s finances overnight.