As December came to a close, an important piece of legislation was passed by Congress and signed by the President that has significant implications on our sector.
As December came to a close, an important piece of legislation was passed by Congress and signed by the President that has significant implications on our sector.
On December 20, 2019, H.R. 1865, the “Further Consolidated Appropriations Act, 2020” became law. This legislation includes the repeal of Internal Revenue Code Section (IRC) 512(a)(7), the unrelated business income tax (UBIT) on qualified transportation benefits, and simplification of the private foundations excise tax.
IRC 512(a)(7) was part of the Tax Cuts and Jobs Act of 2017 and imposed a 21% UBIT on nonprofits providing transportation and parking benefits to employees, including subway and bus passes, parking and ride-sharing.
In early 2019, Independent Sector partnered with researchers at the Urban Institute and George Washington University on a study to quantify the impact of IRC 512(a)(7). The study determined the UBIT would divert an average of $12,000 per year away from each nonprofit’s mission. That cost is in addition to the administrative burden it put on nonprofits.
The repeal of this legislation is retroactive to the original date of enactment (December 2017). Exponent Philanthropy CEO Henry Berman advised in a message to e-mail subscribers that foundations impacted by this tax may want to file amended 990T returns to claim a refund for taxes paid or incurred after December 31, 2017.
The new legislation also includes simplification of the private foundation excise tax to 1.39%. Previously, private foundations were required to pay a 2% excise tax on net investment income. The tax could be reduced to 1% if certain distribution requirements were met.
Repeal of UBIT and streamlining the private foundation excise tax are the first two action items on CMF’s government relations goals adopted during the annual meeting of the CMF Government Relations Committee. As such CMF has been actively engaged with several coalitions and signed on to multiple letters of support, including a letter calling for repeat of UBIT signed by members of the UBIT Coalition, a group of over 115 national and regional organizations. Most recently, CMF staff traveled to Washington D.C. in the early part of December to meet with members of Michigan’s congressional delegation to express the importance of these much needed changes.
The bill was sponsored by U.S. Senators Chris Coons (D-Del.) and James Lankford (R-Okla.). In a press release, Coons said, “I believe that we have a moral obligation to support our neighbors most in need, and nonprofits play an essential role in doing just that.” He added, “The passage of this bill will help to ensure that America’s charitable nonprofits and houses of worship are able to continue providing critical services to communities without undue burden.”
In an article in The Nonprofit Times, David Thompson, vice president of public policy for the National Council of Nonprofits, shared, “We’re delighted that our elected leaders agreed to agree for a change. It’s regrettable, though, that it took so long to repeal a tax that never made sense to anyone and that forced thousands of front-line nonprofits to divert two years of attention and millions of dollars away from their missions. That was time and money that would have been better spent helping people in local communities.”
Explore CMF’s government relations goals adopted during the annual meeting of the CMF Government Relations Committee.
