Welcome Tax News for Tax-Exempt Organizations

By Nicholas Porto December 20, 2019

Just in time for the holidays, Congress passed a bill with more tax reform changes. H.R. 3301, the Taxpayer Certainty and Disaster Relief Act of 2019, includes several repeals and modifications to the Tax Cuts and Jobs Act from 2017, with two provisions in particular that impact tax-exempt organizations. Most will remember the administrative complexity that was added the last time Congress passed a major piece of tax legislation. This time around, however, the changes are likely to put a smile on the faces of most non-profit organizations.

The first provision in the bill involves the infamous “parking tax.” The bill repeals Section 512(a)(7) of the Internal Revenue Code retroactively (cue the Hallelujah Chorus). Since the repeal is retroactive, nonprofits that filed Form 990-T for tax years 2018 (or 2017 for fiscal year filers) and paid a tax on parking and transportation-related expenses provided to their employees will be able to get a refund of those taxes paid. It is unclear at this time how the IRS will allow an organization to file for a refund, but the mostly likely mechanism will be through an amended Form 990-T.

The second provision is one that was in the original tax reform bill floated at the end of 2017 but did not make the cut into the final legislation. This time around, the bill will remove the two-tiered net investment income excise tax under Section 4940 and replace it with a flat 1.39% excise tax instead. For decades, private foundations were required to pay a 1% or 2% excise tax on their net investment earnings during the tax year. To determine what tax rate a private foundation was subject to for any given year required a complicated calculation that could only be known for sure after the last day of the tax year, making distribution and estimated tax planning difficult to predict. With a flat tax, private foundations will have a greater level of tax cost certainty and an easier time budgeting for grant payouts going forward.

The effective date of these provisions will be for tax years beginning after the date of enactment of the new Act. The Senate passed the legislation this week through H.R. 1865 and the President is expected to sign the bill into law before the end of the year. So, 2020 will bring some welcome good news for tax-exempt organizations that were hit particularly hard by the Tax Cuts and Jobs Act.

To discuss this tax legislation, please contact Nick Porto at 800.244.7444.