Since the release of the H.R. 1, “the Tax Cuts and Jobs Act” (the Bill), not-for-profit organizations have been looking for the silver lining and trying to figure out how they may be impacted by the new provisions. While the Bill affects charitable giving from individual taxpayers, private foundation income, public charities, colleges and universities, and donor advised funds, it affects each of them in very different ways. In this summary, we’ll look at exactly who is impacted and what this means for the future of charitable giving.
There are several potential provisions that will impact the tax-exempt sector. The proposal that will be effective for taxable years beginning after December 31, 2017, may include the following provisions:
Tax-exempt entities can also look for a possible increase in unrelated business taxable income by the amount of certain fringe expenses for which a deduction is disallowed. For example, tax exempt entities will be taxed on the value of providing their employees with transportation fringe benefits, on-premises gym and other athletic facilities by treating the funds used to pay for such benefits as unrelated business income. This will be effective for taxable years beginning after December 31, 2017.
Currently, it is unclear whether certain State and local entities (such as public pension plans) that are exempt under section 115(I) as a government sponsored entity as well as section 501(a) are subject to the UBIT rules. Under the proposal, all entities exempt from tax under section 501(a) notwithstanding the entity exemption under any other provision of Code would be subject to the UBIT rules. This would go into affect for tax years beginning after 2017.
Education incentives will also get a facelift. Possible provisions that may go into effect for taxable years beginning after December 31, 2017 include:
Under the provision in the tax reform legislation, certain private colleges and universities would be subject to a 1.4 percent excise tax on net investment income. This new excise tax would not apply to state colleges and universities. The provision would only apply to private colleges and universities that:
There are several other important provisions that affect not-for-profit entities.
The Senate Finance Committee released its own version of a tax reform proposal late last week. We will summarize the Senate provisions in a separate news alert to be released shortly. Republican lawmakers have said they hope to have bills passed through the House and Senate by Thanksgiving, so that a final bill can be completed, passed, and signed into law in December. This a very short timeline.
For more information about this tax reform and how it may affect your not-for-profit, consult your local Sikich representative or visit us at https://www.sikich.com/.
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