This bill amends section 117 of the Higher Education Act to require the Secretary of Education to audit at least 30 institutions every two years—starting within 60 days of enactment—to verify compliance with foreign‑gift reporting. Audit targets are prioritized by endowment size, prior foreign funding or contracts, prior noncompliance, public reporting of contributions from ‘‘foreign entities of concern,’’ or formal MOUs with federal agencies.
Audit results must identify under‑ or over‑reported gifts/contracts and be reported to Congress and posted publicly within 30 days of completion.
Separately, the bill adds two excise taxes to the Internal Revenue Code: a 300% tax on income an ‘‘applicable institution’’ receives from a ‘‘foreign country of concern’’ and a 110% tax on any foreign funding that an audit determines was not reported as required. The taxes apply to institutions meeting enrollment and student‑location thresholds and take effect for taxable years beginning after 60 days post‑enactment.
Together, the enforcement and tax provisions significantly raise the stakes for how colleges and universities handle foreign gifts, contracts, and reporting.
At a Glance
What It Does
It adds a new subsection to HEA §117 requiring biennial audits of no fewer than 30 institutions to check foreign‑gift reporting and requires public reporting of audit findings. It also creates IRC §4969 (300% tax on income from ‘‘foreign countries of concern’’ for certain institutions) and §4970 (110% tax on foreign funding found unreported by audit).
Who It Affects
Colleges and universities that accept foreign gifts or contracts—especially large endowed institutions, schools with prior foreign funding, those reporting contributions from ‘‘foreign entities of concern,’’ and institutions with federal MOUs. The taxes target 'applicable institutions' defined by enrollment and student‑location thresholds.
Why It Matters
The bill combines administrative audits with punitive tax penalties (uncommonly high excise rates) to enforce disclosure rules, shifting compliance risk from reputational sanctions to significant fiscal exposure and mandatory public transparency.
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What This Bill Actually Does
The bill adds a new auditing requirement to HEA §117. Within 60 days of enactment the Department of Education must begin audits, and then every two years it must audit at least 30 institutions.
The law gives the Secretary discretion to prioritize audits of very large endowments (top 1 percent), institutions with a prior record of substantial foreign gifts or contracts, institutions previously found noncompliant, institutions that themselves report contributions from ‘‘foreign entities of concern,’’ and institutions that have formal agreements with federal agencies. Each audit looks back at the two reporting years before the audit year and checks whether an institution complied with section 117’s reporting obligations.
If an audit finds discrepancies, the department must identify which gifts or contracts were under‑ or over‑reported and provide specifics: the misreported amount, the foreign source, the country of origin, and the receipt or contract dates. The Secretary must submit the audit report to Congress and make it publicly available on the Department of Education website within 30 days of completing the audit.
That public posting is an explicit requirement, not optional guidance.The bill also creates two new excise taxes in the tax code. IRC §4969 imposes a 300 percent tax on an applicable institution’s income received from any ‘‘foreign country of concern’’ during the taxable year.
An 'applicable institution' is an eligible educational institution with at least 500 tuition‑paying students in the preceding taxable year and with over 50 percent of those tuition‑paying students located in the United States. The statute incorporates related‑organization aggregation rules similar to those used elsewhere in subchapter H.IRC §4970 imposes a 110 percent excise tax on 'unreported foreign funding'—defined as gifts, contracts, or amounts tied to a change in ownership or control that were required to be reported under HEA §117 but were found not to have been reported by an audit under the new §117(g).
That tax is due within 180 days after the institution is notified of the audit results. If the unreported funds come from a 'foreign country of concern,' the 110 percent tax is in addition to the 300 percent tax under §4969.
The tax provisions take effect for taxable years beginning after the date that is 60 days after enactment.
The Five Things You Need to Know
The Department of Education must audit at least 30 institutions every two years, starting within 60 days after enactment, and each audit reviews compliance for the two prior reporting years.
Audit selection prioritizes institutions in the top 1% by endowment, those with prior substantial foreign gifts or contracts, prior noncompliance, public reporting of contributions from 'foreign entities of concern,' or formal agreements with federal agencies.
IRC §4969 imposes a 300% excise tax on income an 'applicable institution' receives from a 'foreign country of concern'; 'applicable institution' requires ≥500 tuition‑paying students and >50% of tuition‑paying students located in the U.S.
IRC §4970 imposes a 110% excise tax on any foreign funding an audit determines was not reported as required by HEA §117; that tax is due within 180 days of audit notification and can stack with the 300% tax.
Audit reports must be delivered to specified congressional leaders and committees and made publicly available on the Department of Education website within 30 days of audit completion.
Section-by-Section Breakdown
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New audit duty for Secretary of Education
This provision inserts subsection (g) into HEA §117 and requires the Secretary to begin audits within 60 days of enactment and then every two years. The threshold—'no fewer than 30 institutions'—creates a recurring, programmatic compliance function rather than one‑off reviews. For compliance officers, this means institutions should expect periodic, systematic scrutiny rather than sporadic inquiries.
Prioritization rules for choosing audit targets
The bill lists five priority criteria: top 1% endowment ranking, prior substantial foreign gifts/contracts, prior noncompliance with §117, public reporting of contributions from 'foreign entities of concern' (as defined in the Research and Development, Competition, and Innovation Act), and formal MOUs with federal agencies. These criteria mix objective metrics (endowment rank) with programmatic indicators and prior behavior, which will shape institutional risk assessments and internal recordkeeping priorities.
What auditors must verify and report
Audits must determine compliance across the two reporting years preceding the audit year and, if noncompliance exists, identify each misreported gift or contract with details: amount under/over‑reported, foreign source, country of origin, and receipt/contract dates. That level of granularity increases the records institutions must retain and may require cross‑reference of gift agreements, contracts, bank records, and foreign source documentation.
Congressional delivery and public availability of audit results
The Secretary must transmit audit results to specified congressional leaders and committees and make the reports publicly available on the Department of Education website within 30 days. The public posting requirement elevates reputational risk and raises potential conflicts with confidentiality terms in donor agreements.
New excise taxes: 300% on ‘countries of concern’ income; 110% on unreported funding
The bill adds §4969 to impose a 300% excise tax on income an 'applicable institution' receives from a 'foreign country of concern' (per the R&D Act definition). It defines 'applicable institution' by enrollment and student‑location thresholds and applies related‑organization aggregation rules akin to §4968(d). Section 4970 imposes a 110% tax on unreported foreign funding identified by the audits in new §117(g), due within 180 days of audit notification, and clarifies that the two excise taxes can both apply to the same funds.
When the tax provisions take effect and housekeeping changes
The tax amendments apply to taxable years beginning after the date that is 60 days after enactment. The bill also makes clerical amendments to the subchapter H headings and table of sections. Practically, institutions should treat the 60‑day post‑enactment window as the trigger for preparing for new tax reporting and compliance processes for the next taxable year.
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Explore Education in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Congress and national security policymakers — receive standardized, recurring audits and detailed data on foreign gifts and contracts (amounts, sources, countries), improving oversight and legislative targeting of perceived foreign influence.
- Department of Education — gains explicit statutory authority and a recurring enforcement tool to monitor HEA §117 compliance, strengthening the agency’s role in institutional oversight.
- Students and parents concerned about foreign influence — benefit from public disclosure of audit results, which may provide greater transparency about institutions' foreign relationships and potential conflicts of interest.
- Compliant institutions — gain defensible public records and reputational protection when audits clear them, and a clearer legal framework to prioritize compliance investments.
Who Bears the Cost
- Colleges and universities — face substantial compliance costs to document, track, and report foreign gifts/contracts, plus the risk of punitive excise taxes (300% and 110%), which could be financially crippling if triggered.
- Institutions with international partnerships — may lose funding or partnerships as donors and foreign governments reconsider gifts or contracts that could expose institutions to massive excise taxes or public scrutiny.
- Department of Education — must staff and run a recurring audit program, process, redact, and publish reports, and handle appeals or disputes; this creates an unfunded administrative burden not paired with explicit appropriations in the bill text.
- Foreign donors and partner entities — face reputational and financial consequences from public disclosure or from being identified as a 'foreign entity/country of concern'; this may chill legitimate collaboration.
Key Issues
The Core Tension
The central dilemma is balancing stronger transparency and national‑security oversight of foreign influence against the risk of chilling legitimate international collaboration and imposing disproportionate fiscal penalties for reporting errors: the bill makes disclosure failures extremely costly and public, which deters abuse but also risks punishing inadvertent noncompliance and undermining research partnerships.
The bill blends administrative audits with extraordinarily high excise taxes, but it leaves several implementation questions open. It borrows the definition of 'foreign country of concern' from the Research and Development Act, which is not a simple, universally recognized list; reliance on that cross‑reference could produce gaps or inconsistencies depending on how that definition evolves.
The statute does not define 'substantial gift' or 'substantial contract,' yet those terms are used as audit selection criteria; absent regulatory guidance, auditing targets and institutions will face uncertainty about when a transaction triggers heightened scrutiny.
The tax design is punitive rather than remedial: a 300% rate on income from certain foreign countries and a 110% rate for unreported funds are calibrated to deter but may also produce economically irrational outcomes—institutions could owe more in excise tax than the value of the underlying funding, potentially forcing program cancellations or insolvency in extreme cases. The bill is silent on administrative appeals, penalty mitigation for inadvertent reporting errors, or how audit findings interact with taxpayer rights under the Code.
It also mandates public posting of audit reports without specifying redaction authority for sensitive information, creating tension between transparency, donor confidentiality, and national security protections.
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