Reconciliation Reached – Tax Reform Proposal

On December 15, 2017, the conference committee reached an agreement to reconcile the discrepancies between the House and Senate tax bills. They released their compromised bill, which proposes sweeping changes for tax-exempt organizations.
 
Following is a summary of some of the key changes. Unless otherwise noted, the changes would be effective for tax years beginning after 2017. The House and Senate plan to vote on the bill the week of December 18, and it appears they secured the votes needed to have a bill in President Trump’s hands before the end of the year.
 
Contributions

• 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. Net operating losses arising in a taxable year beginning before January 1, 2018, that are carried forward are not subject to this provision.

Excise Tax

• 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. Requirements would be based on the number of students, amount of assets held per student, and composition of students.

Bond Reforms

• 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.