Efforts continue from the philanthropic sector to educate the IRS about the effects of the new unrelated business income tax (UBIT) for employee fringe benefits on tax-exempt organizations.

UBIT on targeted fringe benefits includes transportation and wellness for employees of any 501c(3) nonprofit, mission-related investments (MRIs) and potentially other paths of investments.

UBIT was expanded to these items through the recent tax reform and has been in effect since the beginning of the year but there are still a lot of questions surrounding the new taxes and what they mean for tax-exempt organizations.

“Because this is an entirely new way to tax nonprofits through UBIT, experts still aren’t clear exactly how the IRS will interpret the law, making it difficult to judge how it applies to specific examples,” Independent Sector shared in a recent blog.

CMF petitioned the IRS and Treasury Department to delay implementation of penalties for not filing and paying UBIT until there is sufficient guidance. 

As CMF reported in March, several CMF members, including Brenda Hunt, president and CEO, Battle Creek Community Foundation (BCCF) met with the U.S. Treasury Department during Foundations on the Hill (FOTH) in D.C. to discuss the effects of the UBIT.

“It was a very useful meeting with Treasury Department representatives in order to discuss solutions for potential UBIT taxes that could inadvertently negatively affect the good work of foundations and many nonprofits,” Hunt said immediately following FOTH. “CMF played a key leadership role in defining the impact and with member input providing examples of how clarity and correction would be useful to supporting the good work being done.”

The National Council of Nonprofits is now calling on others in the sector to submit public comments to the IRS and Treasury Department to delay the effects of the UBIT on nonprofits until one year after official guidance is provided.

As the Council on Foundations (COF) shared the IRS is expected to release guidance on the two sections of UBIT that relate to nonprofit organizations as early as the end of June.

For a deeper dive on UBIT and other aspects of the tax act in relation to the nonprofit sector, join CMF and the Michigan Nonprofit Association (MNA) for a free webinar on May 22: Washington and Tax Policy. 

Your foundation peers, Rob Collier, president and CEO of CMF and Donna Murray-Brown, president and CEO of MNA will lead the discussion on the opportunities and challenges facing foundations and nonprofits.

If you can’t join the live webinar, be sure to register and CMF will provide you with a recording of the webinar, resources and slides following the discussion.