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Excise Tax

A tax levied on specific goods or services, or on a particular activity, rather than on income or property across the board. In this case, it's a tax on certain large educational endowments.

Endowment

Financial assets, such as stocks, bonds, and real estate, that are donated to an institution (like a university) and managed to generate income for its ongoing operations. The principal is usually kept intact, and only the investment returns are spent.

Fair Market Value

The price that an asset would fetch in the marketplace, based on what a knowledgeable, willing, and unpressured buyer would pay a knowledgeable, willing, and unpressured seller.

Internal Revenue Code of 1986

The primary body of tax law in the United States, which outlines all federal tax statutes and regulations.

Taxable Year

An annual accounting period for keeping records and reporting income and expenses for tax purposes. For most individuals, it's the calendar year, but organizations can have different fiscal years.

Exempt Purpose

The reason an organization is granted tax-exempt status by the government, such as for educational, charitable, or religious activities. Assets directly used for this purpose are often treated differently for tax calculations.