The versions of the House and Senate bills have gone through the conference committee. Presumably this will be the final bill approved by both houses and signed by the President although, of course, nothing is final until the bill has passed.
The bill is extensive and encompasses many areas of tax law with the primary thrust of the bill to reduce corporate tax rates to make American businesses more competitive. This blog posts covers some of the major areas affecting nonprofit organizations and will be updated if and when the bill is signed by the President.
Effect on Charitable Contributions
- Some of the worst fears of the charitable sector were realized with the doubling of the standard deduction and elimination or curtailment of other itemized deductions, such as sharp limitations on deduction of state and local property taxes and income taxes and reductions in allowed mortgage interest deductions. The result of these provisions should be a large decrease in the number of tax filers claiming itemized deductions and thus benefiting from charitable contribution deductions. We have discussed this before on several occasions and no relief was afforded the charitable sector despite extensive lobbying efforts. We will see how this affects charitable contributions.
- One positive, however, was an increase in the percentage of adjusted gross income that can be offset by charitable contributions from 50% to 60% for gifts of cash to public charities.
- Charitable contributions of Electing Small Business Trusts (EBST) will now be governed by the rules affecting individuals not the rules for trusts.
- The so-called Pease limitation which served to reduce itemized deductions above certain adjusted gross income (AGI) limits is being repealed. It is possible under current law that a big donor in low or no tax states like Florida or Texas could have seen a reduction in their charitable contribution deduction due to the Pease limitation, so this could be a positive.
- As discussed in a recent blog the current 80% deduction for contributions made for athletic seating rights will be repealed.
- The bill would also repeal the exception to the contemporaneous written acknowledgment requirement for $250 or more when the donee organization files the required return.
- The estate and gift tax unified credit basic exclusion amount would increase to $10 million or $20 million for a married couple further reducing the number of estates that would actually pay estate taxes.
Other Nonprofit Provisions
- The conference agreement includes a provision from the House bill that unrelated business taxable income would increase by the amount of certain fringe benefit expenses for which a deduction is disallowed. In addition, a separate calculation of unrelated business taxable income will be required for each trade or business. These provisions could increase unrelated business income taxes for many nonprofits. We will monitor exactly how these provisions will be applied.
- The bill would impose a 21% excise tax on compensation above $1 million paid to tax-exempt organizations five highest paid employees for a tax year. The tax would also apply to certain parachute payments as defined. Compensation would be treated as paid when rights to renumeration are not subject to a substantial risk of forfeiture as defined in 457(f)(3)(B).
- A 1.4% excise tax on the investment income of certain private colleges and universities and their related organizations would apply. Entities with greater than 500 students and assets of at least $500,000 per full-time student with more than 50% of their tuition paying students located in the United States. This should only affect private universities with very large endowments.
- No change was made to the Johnson Amendment provisions or donor-advised fund disclosure rules.
- Proposed repeals of new market tax credits are not in the final bill.
- Tax exempt interest on private activity bonds is retained. This had been eliminated in the House bill.