Not-for-Profit alert: House, Senate and Now President Trump approve legislation with significant provisions for tax exempts
PARKING – The 2017 Tax Cuts and Jobs Act (TCJA) imposed an unrelated business income tax of 21 percent on the expenses nonprofits incur for providing employee benefits like transit passes and employee parking. Congratulations! This is now repealed.
The legislation states that the measure “shall take effect as if included in the amendments made by section 13703 of Pub. L. No. 115-97” so that the repeal of section 512(a)(7) would apply retroactively to the date of its enactment of the TCJA (December 22, 2017), thus treating the tax liability as if it never existed.
Mazars Insight:
The passing of this bill into law is great news for exempt organizations as it completely removes this burdensome taxation from not-for-profits.
It is expected that the IRS will issue guidance on refund procedures for tax-exempt organizations that paid unrelated business income tax on qualified transportation fringe expenses under section 512(a)(7).
Another important part of this legislation is a provision to flatten the rate of tax on the net investment income of private foundations to 1.39%, replacing the current two-tier tax of either 2% or 1%.
Previously, private foundations were subject to a 2% tax, which could be reduced to 1% if the private foundation’s charitable distributions in a given year exceeded the private foundation’s average payout rate over the preceding five years. The two-tiered often created a disincentive for private foundations to increase grant-making, as increasing grant-making could trigger the higher 2% tax.
The 1.39% tax rate is effective for tax years beginning after the date of enactment of the Act (January 1, 2020 for calendar year foundations).
Mazars Insight:
This provision was originally included as part of the TCJA, however it was ultimately not included in the final bill.
This will provide some relief to private foundations who had been in the 2% tax rate, and should increase the dollars available for charitable giving, however it remains to be seen if the additional tax burden for the foundations who had been paying 1% will offset this.
Please contact your Mazars USA LLP professional for additional information.
Published on: December 23, 2019