State attorneys general increasingly impact businesses in all industries. Our nationally recognized state AG team has been trusted by clients for more than 20 years to navigate their most complicated state AG investigations and enforcement actions.

State Attorneys General Monitor analyzes regulatory actions by state AGs and other state administrative agencies throughout the nation. Contributors to this newsletter and related blog include attorneys experienced in regulatory enforcement, litigation, and compliance. Also visit our State Attorneys General Monitor microsite.

Contact our State AG Team at StateAG@troutman.com.

Troutman Pepper Locke Spotlight

Rising Junk Fee Enforcement Means Businesses Should Be Proactive

By Clayton Friedman, Namrata Kang, and Kyara Rivera Rivera

Troutman Pepper Locke attorneys examine the recent wave of laws and regulations targeting junk fees at both the state and federal level.

Given rising federal and state enforcement on “junk fees,” businesses should confirm their advertising reflects total prices and review consumer feedback to ensure compliance.

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State AG News

Washington AG Secures $8.2M Against Company for Sending Knock-Off Official Government Correspondence

By Troutman Pepper Locke State Attorneys General Team and Sydney Goldberg

Labor Law Poster Service, formerly Mandatory Poster Agency, was recently ordered to pay more than $8.2 million in penalties and restitution following a lawsuit brought by the Washington state attorney general’s (AG) office. The lawsuit is the third enforcement action taken against this Michigan company in connection with its efforts to mail solicitations to Washington small businesses that look like or mimic official government communications.

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Supreme Court Limits Universal Injunctions: Implications for Federal Courts

By Troutman Pepper Locke State Attorneys General Team, Jeff Johnson, and Blake Christopher

At the end of a blockbuster term, the Supreme Court sharply limited the power of federal courts to issue so-called universal injunctions against government actors. The decision in Trump v. CASA (and related cases) did not foreclose federal courts’ power to enjoin federal policies that are likely unconstitutional but curtailed the reach of those injunctions to the parties (or potentially the plaintiff class) in a suit. The result will require affected parties to litigate rather than wait on potential widespread relief from courts in distant corners of the U.S.

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AG of the Week

Liz Murrill, Louisiana

In 2024, Liz Murrill became Louisiana’s first female AG. An eighth-generation Louisianan, she was born in New Orleans and raised in Lafayette. She graduated from Louisiana State University with a bachelor’s degree in journalism and earned her law degree from LSU’s Paul M. Hebert Law School, where she was editor-in-chief of the Louisiana Law Review. She also holds a Master of Laws from Pepperdine University and was a U.S. Supreme Court fellow.

Murrill began her legal career clerking for federal judges and held key roles in state government, including executive counsel to the governor. As Louisiana’s first solicitor general, she represented the state in significant legal matters, arguing cases before the U.S. Supreme Court and leading numerous federal cases. Her work has earned her respect among judges and peers nationwide.

Beyond her professional achievements, Murrill is dedicated to community service. She has been married for 30 years and raised four sons. Her volunteer efforts include leadership roles in Cub Scouts, crisis-line support for domestic abuse victims, and disaster recovery legal services following Hurricane Katrina.

Louisiana AG in the News:

  • Murrill addressed recent allegations against the New Orleans mayor for abuse of emergency powers in the cancellation of a sanitation contract.
  • Murrill joined 48 other AGs in securing more than $200 million to address allegations of an illegal kickback scheme.
  • Murrill alerted the public to the growing presence of illegal online casino gambling websites and mobile applications.

Upcoming AG Events

  • August: AGA | Chair’s Initiative | Alaska
  • September: RAGA | Fall National Meeting | Miami, FL
  • September: DAGA | Denver Policy Conference | Denver, CO

For more on upcoming AG Events, click here.

Blockchain technology is an emerging solution for high-security intellectual property (IP) asset management and recordkeeping. The blockchain records transactions and tracks assets within a business network as a shared, immutable digital ledger. Its tamper-proof nature, as a decentralized database with data stored across multiple computers, makes it not only a reliable database to track transactions but also a tool for authentication. IP owners may be intimidated by the technical and legal complexities of blockchain, but those willing to invest time into understanding its various applications will benefit from early adoption of this technology.

Background

Blockchain technology is already implemented in various industries, including banking, health care, and education. As an area that requires authenticity and security, IP too can benefit from instituting blockchain.

Blockchain technology may be envisioned for various use cases in copyright, trademark, and patent protection. For example, its highly secure timestamping of data could be used as evidence of ownership in copyright disputes, a record of trademark usage, and to memorialize disclosure dates for patent validity purposes.

IP owners can embrace this emerging tool to further insulate their IP from infringement, copyists, and other bad actors by implementing blockchain technology to enhance documentation of ownership, authorship, and validity. To determine if this is the right solution, keep in mind these opportunities and risks:

Benefits and Opportunities

1. Proof of Ownership and Authenticity

The blockchain cryptographically records, timestamps, and makes permanent any data entered on the chain. In areas of IP law where proof of ownership is critical, such as copyright protection, reliable blockchain information may be a valuable tool for IP holders to establish a verifiable record of ownership. In a copyright case where date of authorship was crucial to the infringement analysis, a French court relied on a blockchain timestamp to serve as proof of the date of authorship.

2. Immutable Record Keeping

A significant feature of blockchain technology is its development of an “immutable record.” Data entered on the chain (a “block”) is encrypted using cryptographic information from the previous block. In effect, this benefits users by building a tamper-proof record that is kept in chronological order. This reliable, permanent system may be useful for tracking trademark usage to build an evidentiary record to dispute abandonment, for logging invention disclosures either defensively or to support patent validity, or in other legal disputes where a reliable and clear record may establish proof.

3. Smart Contract Features to Automate License Agreements

Blockchain technology is used as a tool to code contract conditions into automated systems. These “smart contracts” may be used in IP transactions to monitor IP usage and collect royalties. For example, a smart contract can facilitate the payment of IP royalties by automatically calculating and disbursing payments based on the usage terms of an agreement.

Potential Obstacles and Risks

1. Legal Uncertainty

Blockchain technology is relatively new, especially in the IP space, and its integration into IP protection is not fully established within U.S. legal systems. Regulators are still working to understand blockchain technology and whether certain laws should be updated to properly address decentralization.

The complexities of blockchain technology and its impact on IP protection can be navigated by experienced attorneys. They can interpret existing legal and regulatory requirements and understand their implications in this emerging area in IP protection.

2. Challenges in Industrywide Adoption

As blockchain technology becomes more widespread, various blockchain platforms may be developed with distinct characteristics. Industrywide adoption of blockchain technology in IP is hindered by the lack of standardization across blockchain platforms, causing stakeholders to hesitate due to its absence of uniform standards. Before sharing information with a separate or new blockchain network, attorneys can advise on the best practices to protect sensitive IP information.

3. Technical Complexity and Cost

Blockchain technology may require substantial investment. Organizations may hire blockchain developers, establish secure nodes, and train legal professionals to navigate blockchain records. Alternatively, organizations may rely on predeveloped blockchain platforms, but this still requires substantial investment to understand a platform’s features, operations, and risks.

4. Data Privacy and Security Challenges

The unique characteristic of the blockchain is that once data is stored, it cannot be altered. This permanence ensures data integrity for patents, trademarks, and copyright registrations. However, it may also pose challenges in managing access controls to the blockchain platform and ensuring that only authorized individuals can view or interact with the data. To address these challenges, organizations should use private keys, encrypt sensitive data, and maintain audit procedures.

Key Takeaways

Blockchain technology has the capacity to provide highly secure and reliable management of IP assets and transactions, both for recordkeeping and authentication in the event of a dispute. Undeniably, the challenges associated with blockchain technology in the IP space are complex to navigate. For IP holders, now is the crucial time to explore the opportunities and understand the risks associated with integrating blockchain in your IP protection strategy.

Peri Mishkin and Isabella Profenno, 2025 summer associates with Troutman Pepper Locke who are not admitted to practice law in any jurisdiction, also contributed to this article.

Generative AI (GenAI) algorithms require data inputs to analyze, transform, and generate content. But does using copyrighted material without prior authorization for training or operating these algorithms infringe on the rights of the original creators, or is it permitted under the fair use exception?

Fair use is a legal doctrine that permits limited use of copyrighted material without obtaining permission from the copyright holder. Courts will assess whether a use constitutes fair use by balancing the following four factors: (1) the purpose and character of the use, (2) the nature of the copyrighted work, (3) the amount and substantiality of the portion used, and (4) the effect of the use on the market for the copyrighted work.

It’s a fine line that must be assessed on a case-by-case basis, and legal precedent is in flux as courts across the U.S. grapple with these cases of first impression in the GenAI space. Recently, several California federal judges have ruled on cases involving fair use of copyrighted materials in training GenAI algorithms, which may offer insights into litigation outcomes in the future.

Transformative Use or Derivative Work?

When evaluating the first factor of the fair use standard — the purpose and character of the use — whether the use is transformative is an important consideration. Transformative use refers to instances where the use adds something new and alters the original work with new expression, meaning, or message. If the GenAI algorithm’s use of copyrighted material in its inputs or outputs is deemed a “transformative use,” it is not dispositive of a fair use finding, but it strengthens a fair use claim.

However, many copyright holders have argued that use of their works to train GenAI algorithms is directly infringing, or, at best, infringes by creating unauthorized derivative works of the original. A derivative work is an exclusive right reserved for the copyright holder, allowing them to create works substantially similar to the original with the addition of new elements or modifications.

In simple terms, courts must consider whether the use only adds new elements to the original work (derivative) or adds an entirely new expression, meaning, or message (transformative). This evaluation can be subjective and depends on the specific facts and evidence of each case.

Recent California Court Rulings – Key Takeaways

  1. Using Copyrighted Material to Train GenAI May Constitute Fair Use — But Beware of Using Pirated Content. In June, a California federal judge ruled on summary judgment that the use of copyrighted books to train large language models (LLM) constituted fair use due to being “exceedingly transformative” in training the algorithm to generate new text outputs. The court also ruled that converting purchased print books into digital format in a central library was transformative because it was for the purpose of facilitating storage and searchability, did not create new works, and copies were not disseminated outside the company. However, the court refused to grant summary judgment in favor of the defendants for pirated books uploaded into the central library, as the pirated books displaced demand for legitimate copies. In July, the court has certified a class for actual or beneficial owners of copyrights in books bearing ISBNs or Amazon Standard Identification Numbers downloaded by Anthropic from illegal online libraries, Library Genesis and Pirate Library Mirror, where there was sufficient evidence of metadata identifying the pirated materials. The court declined to certify owners of copyrights in books taken from Books3, a third illegal online library, because those copies came with less metadata, making identification of titles and authors too burdensome. Bartz et al v. Anthropic PBC, 24-05417 WHA, No. 231 (N.D. California).
  2. Even if a GenAI Algorithm’s Use May Be Transformative, Evidence of Market Harm Can Undermine a Fair Use Finding. In an almost simultaneous ruling on summary judgment, another California judge agreed that it can be highly transformative to use copyrighted materials to train LLM. However, the court noted that even if a use is transformative, there may not be fair use if the defendant’s use significantly harms the market for the original work — with harm to the market being the most critical factor in evaluating fair use. The court ultimately determined the GenAI’s use to be fair use because the plaintiff presented insufficient evidence of market harm. Kadrey et al v. Meta Platforms, Inc., 23-cv-03417-VC, No. 598 (N.D. California).
  3. Courts May Consider Whether GenAI Models Are Infringing Derivative Works – If Properly Alleged. Last year, a California federal judge suggested that a derivative infringement claim could be plausibly alleged on the basis that a GenAI model is a derivative work of its copyrighted training materials. The plaintiffs’ complaint alleged a GenAI image generator was a derivative work because it contained compressed versions of billions of copyrighted images and made intermediate copies of such images during training. This includes the GenAI allegedly creating a copy of a copyrighted image with slight variations, in multiple iterations.

    The court specifically distinguished the case from Kadrey, because the plaintiffs in Kadrey failed to allege the LLM’s “recasting or adaptation” of the copyrighted materials in any output — much like when a book is adapted into a screenplay or translated into another language. Furthermore, the court differentiated between GenAI creating repeated, iterative copies of copyrighted images and GenAI accessing copyrighted digital books without making any changes to the text. This suggests that courts may analyze GenAI’s uses and outputs of text and images differently when evaluating the sufficiency of potential claims for copyright infringement. Andersen et al v. Stability AI Ltd. et al, 23-cv-00201-WHO, No. 223 (N.D. California).

Ultimately, each GenAI model’s operation is unique, whether an LLM or an image generator, meaning case law precedent may apply differently (or not at all) to certain types of GenAI algorithms. Many of these cases also remain ongoing, so time will tell how the courts will ultimately rule in these matters. We will continue to monitor these cases and their impact on copyright holders and GenAI algorithm creators.

Private credit funds (PCFs) are emerging as key players in the subscription and net asset value (NAV) line market, significantly impacting fund financing. Regulatory changes, economic trends, and strategic innovations are also driving changes in the subscription facility landscape.

Subscription Lines: Navigating Regulatory Changes and Market Dynamics

Subscription lines, secured by investor commitments, remain crucial for private equity funds. Regulatory changes, such as the implementation of the Basel III framework that increased banks’ capital requirements, along with the Federal Reserve’s 2022 updates[1], made subscription lines a more expensive product for traditional banks to provide, prompting many banks to retreat from offering credit facilities.

PCFs stepped into the void created by the retreating banks, providing competitive interest rates, flexible terms, and less restrictive lending structures. Operating under fewer regulatory constraints than traditional banks, PCFs quickly adjusted their compliance strategies, allowing them to provide innovative products tailored to borrowers’ specifications. Specifically, PCFs have capitalized on this market shift by offering subscription lines with fewer covenants and more lenient terms, allowing borrowers greater operational freedom. For instance, PCFs often provide tailored loan terms that align with the specific capital commitment structures of private equity firms, offering more favorable interest rates and repayment schedules that match the firm’s investment cycle. This flexibility is crucial in a market where timing and strategic financial management are key.

While PCFs have made significant inroads by introducing tailored solutions for certain private equity funds, banks that have adapted to the evolving market continue to be indispensable players in the fund financing landscape. Banks provide a unique blend of stability and competitive pricing that appeals to a wide range of borrowers. By leveraging their established infrastructure and regulatory expertise, banks can provide cost-effective solutions that are particularly attractive to smaller funds or those with specific risk profiles.

Moreover, many banks have formed strategic partnerships with PCFs, creating hybrid models that synthesize their respective capabilities. These collaborations allow banks to offer customized facilities while maintaining the trust and reliability that clients expect. These partnerships are particularly beneficial as banks face increasing regulatory pressures and capital requirements related to subscription lines. By cooperating with private credit firms, banks can offload some of the regulatory burden, while private credit firms gain access to a new asset class with strong collateral and potential for higher returns. This synergetic relationship elevates the capabilities of both parties, allowing them to better serve their clients. Likewise, this accommodability ensures that banks remain at the forefront of the industry, meeting diverse borrower needs with innovative and comprehensive financial solutions.

Currently, regional banks with a strong foothold and strategic market expertise are actively working to reenter the subscription line space. These banks have resumed lending activities after stepping back in recent years, capitalizing on their ability to navigate regulatory landscapes and offer tailored financial solutions. Meanwhile, large money center banks with extensive resources and comprehensive services, attracted by the growing appeal of private credit, are forming strategic partnerships with PCFs. These collaborations aim to leverage the strengths of both parties, combining the stability of traditional banking with the customization of private credit. This partnership approach allows banks to offload some regulatory burdens while PCFs gain access to a new asset class with strong collateral and potential for higher returns.

Additionally, there has been a notable resurgence in the bank market following the compression of the last few years. As the fund finance landscape normalizes, subscription line liquidity is roaring back to life. This development is expected to continue through 2025, as banks and PCFs adjust to the evolving market dynamics and capitalize on emerging opportunities.

NAV Lines: Adapting to Current Market Conditions

NAV lines, secured by the pool of assets held by the private equity fund, have faced slower growth due to challenging market conditions. The current economic climate is marked by market volatility resulting from geopolitical tensions, inflationary pressures, and unpredictable shifts in consumer demand. This uncertainty has made it difficult for funds to exit their portfolio companies. The rise in delayed exits as funds hold onto assets longer has led to larger asset pools and potentially increased interest in NAV lines.

Despite these challenges, there is a growing interest in hybrid products that combine aspects of subscription and NAV lines into a single lending solution. These innovative structures offer enhanced versatility and strategic financial management, allowing funds to navigate complex market conditions more effectively.

Additionally, increased regulatory scrutiny has prompted both PCFs and banks to enhance their risk management frameworks, ensuring compliance with evolving legal standards while maintaining operational agility.

Securitization and Market Liquidity

The securitization of private equity fund financing is anticipated to boost market liquidity. Credit rating agencies Fitch[2], S&P Global[3], and Moody’s[4] have each proposed methodologies for rating subscription lines. Additionally, Fitch has published finance rating criteria for NAVs.[5] Formal ratings will assist in the securitization of private equity fund financing, which will attract investors from more regulated markets, such as Japan, thereby broadening the distribution of financing.

Conclusion

The evolving fund financing landscape presents unique opportunities for pioneering and strategic growth, with PCFs playing a pivotal role in subscription and NAV lines. As PCFs redefine lending practices, they offer flexible and competitive solutions that address regulatory shifts and market dynamics. Strategic partnerships between banks and PCFs, alongside the emergence of hybrid models, are fostering a collaborative approach that blends stability with adaptability. Credit rating agencies’ formal rating of these financial products is projected to enhance market liquidity, expanding the influence and reach of fund financing by attracting a broader range of investors. By prioritizing technological advancements and strategic partnerships, financial institutions can position themselves at the forefront of this transformation.

[1] https://www.federalreserve.gov/publications/files/large-bank-capital-requirements-20220804.pdf.

[2] https://events.fitchratings.com/fitchfinalizessubscriptionfina.

[3] https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/
sourceId/13199000.

[4] https://www.moodys.com/.

[5] https://www.fitchratings.com/research/fund-asset-managers/net-asset-value-finance-rating-criteria-27-02-2025.

On July 21, 2025, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced its intention to delay the effective date of the final rule imposing anti-money laundering (AML) obligations on registered investment advisers and exempt reporting advisers from January 1, 2026, until January 1, 2028. The announcement also indicated that FinCEN is actively re-evaluating the scope and substance of the rule, raising the possibility of further modifications before implementation.

As originally finalized in 2024, the rule would have required SEC-registered investment advisers and exempt reporting advisers to establish and maintain AML programs and report suspicious activity, aligning their obligations more closely with those of other financial institutions subject to the Bank Secrecy Act. This was a significant policy development aimed at closing perceived gaps in the AML regulatory framework — particularly in light of the growth of private funds and the increasing complexity of cross-border investment structures.

The anticipated delay provides investment advisers and fund managers with additional time to assess internal controls, compliance infrastructure, and third-party service arrangements in preparation for a future compliance date. In addition, FinCEN’s indication that it may revisit the rule’s breadth and applicability suggests that further substantive revisions are possible, and firms should be prepared to revisit their compliance strategies once a revised rule is issued.

For background on the final rule as published last year, see our prior client alert: FUNDamentals: Navigating FinCEN’s New AML Regulations for Investment Advisers.

We will continue to monitor developments and provide updates as Treasury and FinCEN issue additional guidance. If you have questions about the impact of the delay or potential revisions to the rule, please contact a member of your Troutman Pepper Locke team.

Troutman Pepper Locke’s Cannabis Practice helps clients throughout their business cycle enter or expand into the cannabis space. Our team combines the resources of attorneys in areas such as licensing and taxation, regulatory compliance, corporate and transactional, intellectual property, and real estate, among others, to provide comprehensive services.

Our Cannabis Practice provides advice on issues related to applicable federal and state law. Cannabis remains an illegal controlled substance under federal law.

Cannabis Regulatory Updates

Congressional Briefing Highlights Growing Bipartisan Consensus on the Need for Federal Clarity in Hemp-Derived Cannabinoid Regulation

By Jean Smith-Gonnell, Agustin Rodriguez, and Cole White

On July 17, the U.S. House Committee on Agriculture hosted a closed-door roundtable briefing focused on the regulatory gray areas surrounding hemp-derived cannabinoid products. The session, convened in response to ongoing concerns over consumer safety, regulatory ambiguity, and market disruption, featured expert insights from four panelists: Jonathan Miller, general counsel for the U.S. Hemp Roundtable; Pamela Epstein, chief legal and regulatory officer at Terpene Belt Farms; Cole White, attorney at Troutman Pepper Locke, in his capacity as special counsel for the Attorney General Alliance; and Dr. Gillian Schauer, executive director of the Cannabis Regulators Association. The discussion reflected mounting congressional interest in addressing the unintended consequences of the Agriculture Improvement Act of 2018’s (2018 Farm Bill) legalization of hemp and its derivatives.

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Closing the Loophole: Updates on Federal and State Attempts to Regulate Intoxicating Hemp-Derived Products

By Jean Smith-Gonnell and Cole White

Intoxicating hemp-derived products have proliferated across the U.S. under the guise of the 2018 Farm Bill’s definition of “hemp.” Although these products produce psychoactive effects akin to state-regulated cannabis products, they are often manufactured and sold with little oversight or regulatory controls.

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Troutman Pepper Locke’s Erin Whaley, Barbara Sicalides, Joseph Kadlec, and Samantha Weber recently authored a Reuters Legal News article “State Antitrust Enforcement Keeps Private Equity Investment in Health Care in the Cross-Hairs.” In the article, they discuss how state legislatures are increasingly scrutinizing private equity investments in health care to prevent negative impacts on health care access and quality, with Pennsylvania’s proposed Healthcare System Protection Act serving as a prominent example of such regulatory efforts.

On July 4, 2025, President Donald Trump signed H.R. 1 into law, the budget reconciliation bill known as the One Big Beautiful Bill Act (the BBB). This legislation includes significant amendments to the excise tax imposed on the net investment income of certain private college and university endowments (the Endowment Tax) under Section 4968 of the Internal Revenue Code (the Code). This alert summarizes certain key changes to the Endowment Tax that could impact higher educational institutions that are potentially subject to it.

The amendments made to the Endowment Tax under the BBB will generally take effect in taxable years beginning after December 31, 2025. Thus, for private colleges and universities having a tax year ending June 30, such amendments will first apply in the tax year beginning July 1, 2026 (with the previous Endowment Tax continuing to apply to such institutions’ tax years ending June 30, 2026).

I.  Applicable Educational Institutions Subject to the Endowment Tax:

  • Law Prior to Enactment of the Act – A private college or university is subject to the Endowment Tax if it constitutes an “applicable educational institution.” An applicable educational institution is defined as a private college or university if (i) such institution had at least 500 tuition-paying students during the preceding taxable year, (ii) more than 50% of such institution’s tuition-paying students are located in the U.S., and (iii) the aggregate fair market value of such institution’s assets (other than those assets which are used directly in carrying out the institution’s exempt purpose) at the end of the preceding year was at least $500,000 per student.
  • BBB Rule – The BBB adopts a similar rule, but materially increases the required minimum number of tuition-paying students before a private college or university becomes subject to the Endowment Tax. Specifically, under the BBB, a private college or university will constitute an applicable educational institution subject to the Endowment Tax if (i) such institution had at least 3,000 tuition-paying students during the preceding taxable year, (ii) more than 50% of such institution’s tuition-paying students are located in the U.S., and (iii) such institution has a student adjusted endowment of at least $500,000. For these purposes, the BBB defines the term “student adjusted endowment” to mean (x) the aggregate fair market value of such institution’s assets (determined as of the end of the preceding taxable year), other than those assets which are used directly in carrying out the institution’s exempt purposes, divided by (y) the number of students of such institution. In contrast to the version of the bill originally passed by the U.S. House of Representatives, the BBB does not exclude religious institutions from the tax.
  • Troutman Take – With the BBB materially increasing the required minimum number of tuition-paying students (from 500 to 3,000) before a private college or university becomes subject to the Endowment Tax, many institutions with smaller enrollment will no longer be subject to this tax for taxable years beginning on or after January 1, 2026.

II.  Tax Rate:

  • Law Prior to Enactment of the Act – The Endowment Tax imposes a flat 1.4% tax rate on the net investment income of applicable educational institutions.
  • BBB Rule – The BBB adopts a tiered rate structure based on the student adjusted endowment (as defined above) of an applicable educational institution as set forth below:

Student Adjusted Endowment:

Tax Rate:

$500,000 – $750,000

1.4%

$750,001 – $2 million

4%

Over $2 million

8%
  • Troutman Take – While the scope of private colleges and universities subject to the Endowment Tax has been limited, the BBB significantly increases the maximum tax rate (from 1.4% to 8%) on the net investment income of applicable educational institutions that remain subject to the Endowment Tax and fall within the highest tier of student adjusted endowment. However, the maximum 8% tax rate under the BBB as signed into law is far less aggressive than the maximum 21% tax rate threatened in the earlier iteration of the One Big Beautiful Bill as originally passed by the U.S. House of Representatives.

III.  Net Investment Income:

  • Law Prior to Enactment of the Act – Code Section 4968 as existing prior to enactment of the BBB provided that the net investment income of an applicable educational institution shall be determined under rules similar to Code Section 4940(c) (regarding the excise tax on the net investment income of certain private foundations). Treasury Regulations promulgated under Code Section 4968 further define net investment income for purposes of the Endowment Tax to generally mean the amount by which the sum of an applicable educational institution’s “gross investment income” and “capital gain net income” exceeds such institution’s allowable deductions. However, such Treasury Regulations expressly exclude the following items from the definition of gross investment income (thereby exempting such items from the Endowment Tax): (i) interest income from a student loan that was made by the applicable educational institution (or a related organization) to a student of the applicable educational institution in connection with the student’s attendance at the institution (student loan interest), and (ii) royalty income that is derived from patents, copyrights, and other intellectual property and intangible property to the extent those assets resulted from the work of student(s) or faculty member(s) in their capacities as such with the applicable educational institution.
  • BBB Rule – The BBB similarly provides that, for purposes of the Endowment Tax, the net investment income of an applicable educational institution shall be determined under rules similar to Code Section 4940(c). However, the BBB overrides certain provisions of the existing Treasury Regulations, expressly providing that net investment income shall be determined by taking into account student loan interest and certain federally subsidized royalty income as gross investment income.
  • Troutman Take – The BBB’s inclusion within net investment income of previously excluded student loan interest and certain federally subsidized royalty income could substantially increase the amount of net investment income and resulting tax liability of private colleges and universities that remain subject to the Endowment Tax.

Conclusion

The BBB limits the number of private colleges and universities to which the Endowment Tax applies; however, those applicable educational institutions that remain subject to the tax may see their after-tax returns on investments reduced. Institutions potentially subject to the Endowment Tax should consider the impact of the amendments discussed above given their specific facts.

For further assistance or clarification, please contact a member of the firm’s Tax group.

FUNDamentals are periodic pieces of news and information specifically for investment funds and investment advisors. If you have topics you would like us to explore in future editions, please reach out to our FUNDamentals editor Heather Stone.

College athletic coaches have always been under pressure from countless sources, whether that is recruiting new student-athletes, managing booster relations, or simply trying to win games. But recent rule changes that permit student-athletes to profit on their name, image, and likeness rights have brought to the forefront additional pressures on coaches as there are now questions about whether, and to what extent, coaches have personal liability for their acts or omissions in their roles as coaches and in capacities adjacent to their coaching roles. This article uses as a case study a lawsuit brought against college football coach Billy Napier to explore the extent of that personal liability as well as the ability of coaches to be made whole by their employing schools for any losses suffered by the coaches.

In addition to the case study, this article presents the results of primary research conducted by the authors on the terms of college coaching employment agreements. In particular, this article compares the presence (or, really, lack of presence) of contractual indemnification provisions in college coaching employment agreements to the prevalence of such provisions in the employment agreements of chief executive officers of public companies.

Drawing upon both the Napier case study and the results of the authors’ research on the prevalence of indemnity terms, this article then makes recommendations to college coaches with respect to their employment agreements, including suggestions around their negotiation for and written documentation of contractual indemnity protections.

Read the full article in the Texas A&M Law Review.