To amend the Internal Revenue Code of 1986 to exempt qualified religious institutions from the excise tax on investment income.
- Sponsor
- Rep. Kelly, Mike [R-PA-16]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jun 18, 2026
Bottom line
The bill provides a tax exemption for specific religious institutions, relieving them from the excise tax on investment income.
What it actually does
This bill amends the Internal Revenue Code of 1986 to exempt certain 'qualified religious institutions' from the 1.4% excise tax on net investment income, which is currently imposed on some private colleges and universities. It defines a 'qualified religious institution' based on its establishment date, association with a church, governance structure or formal agreement, and a published mission predicated on religious tenets.
Proponents argue
Supporters argue that this exemption will provide crucial financial relief to religious institutions, allowing them to retain more of their investment income to further their educational, charitable, and religious missions without an undue tax burden. They contend it aligns with principles of religious freedom and supports institutions that contribute significantly to public good.
Opponents contend
Critics might contend that this bill could lead to a reduction in federal tax revenue and create an uneven playing field by exempting religious institutions while other non-profit educational or charitable organizations remain subject to similar taxes. They may also raise concerns about the specific criteria for qualification and potential for tax avoidance.
The bill is very short and clear, making it highly accessible for a reader to understand its core purpose and provisions.
Section 1(a) and 1(b) of the bill, amending Section 4968 of the Internal Revenue Code of 1986
Exemption of Qualified Religious Institutions from Excise Tax on Investment Income
This provision creates an exception to the existing 1.4% excise tax on the net investment income of certain educational institutions. Specifically, it adds a new paragraph to the Internal Revenue Code stating that institutions qualifying as 'religious institutions' will not be subject to this tax. The bill then defines what constitutes a 'qualified religious institution' through a set of specific criteria related to its founding, association with a church, governance, and mission.
Supporters argue
Supporters argue that this exemption is vital for religious institutions to maintain their financial stability and continue their missions without being penalized for prudent investment strategies. They believe it reduces an unnecessary financial burden on organizations that serve public good.
Critics contend
Critics may argue that providing a tax exemption to one type of non-profit over others could be seen as unfair or create an uneven playing field. They might also express concern over the potential for revenue loss to the federal government.
Tradeoffs
The provision balances the desire to support religious institutions and their missions with concerns about federal tax revenue and equitable treatment across the broader non-profit sector.
The detailed criteria for an institution to be considered a 'qualified religious institution,' including requirements that it was established after July 4, 1776, is associated with a church (described in section 170(b)(1)(A)(i)), meets specific governance or formal agreement conditions, and maintains a published religious mission.
Section 1(b), defining new subsection 4968(h) of the Internal Revenue Code
Why it matters:This is standard legislative practice for defining terms and setting eligibility criteria to ensure the bill's intent is precisely executed. It is not evasive but requires attention to detail.
Case for: Proponents argue that these specific criteria are necessary to ensure the exemption is narrowly tailored to genuinely religious institutions and prevents abuse by organizations that are only nominally religious or do not have a clear, established religious identity.
Case against: Critics might argue that the criteria are overly complex or potentially restrictive, possibly excluding some legitimate religious organizations due to specific governance structures or historical circumstances. Conversely, some might argue the criteria are still too broad.
Estimated impact: These criteria directly determine the universe of institutions eligible for the tax exemption, thereby influencing the overall fiscal impact and the number of beneficiaries.