On December 20, 2017, Congress approved the Tax Cuts and Jobs Act, which provides sweeping changes for tax-exempt organizations. The revised version of the bill carries the title, “An Act to provide for reconciliation pursuant to Titles II and V of the current resolution on the budget for fiscal year 2018.” The bill was signed by President Trump on December 22, 2017.
Following is a summary of some of the key changes. Unless otherwise noted, the changes will be effective for tax years beginning after 2017.
- Increase to the adjusted gross income limitation for cash contributions to public charities from 50% to 60%.
- Eliminate the special rule that provides a charitable deduction of 80% of the amount paid for the right to purchase tickets for athletic events
Unrelated Business Income Tax
- Unrelated business taxable income will include any expenses paid or incurred by a tax-exempt organization for qualified transportation fringe benefits, a parking facility used in connection with qualified parking, and any on-premises athletic facilities as unrelated business income items.
- Organizations that carry on more than one unrelated trade of business would need to separately calculate unrelated business taxable income, including determination and use of any net operating loss for each trade or business.
- A tax-exempt organization would be subject to a 21% excise tax on compensation in excess of $1 million paid to any of its five highest-paid covered employees for the tax year. Remuneration paid to a licensed medical professional, which is directly related to the performance of medical or veterinary services by such professional, is not taken into account when determining the covered employees.
- Certain private colleges and universities would be subject to a 1.4% excise tax on net investment income.
- Advance refunding bonds (refunding bonds issued more than 90 days before the redemption of the refunded bonds) would be taxable. Interest on current refunding bonds would continue to be tax exempt.
Additional complexity is expected because many states do not automatically adopt federal changes but continue under a prior version of the Internal Revenue Code. If you have any questions, please contact your Wipfli relationship executive.