One of the more significant changes made by the Tax Cuts and Jobs Act of 2017 was to require tax-exempt organizations to separately calculate unrelated business income tax for each unrelated trade or business. Instead of offsetting all losses from all income attributable to all unrelated trade or business activities, organizations are now required to “silo” each trade and business and calculate unrelated business income tax for each. The statutory text of the Act was silent about how to determine if an organization has more than one unrelated trade or business or how to identify separate trades or businesses. The IRS previously issued guidance that allowed organizations to consider “all the facts and circumstances” in determining if it had multiple or separate trades or businesses. This standard was vague and not very helpful to organizations seeking concrete guidance on making these determinations.Continue reading “IRS Announces Guidance for “Siloing” Separate Unrelated Businesses”
On Wednesday, March 18th, the President signed into law the Families First Coronavirus Response Act (FFCR). The FFCR applies to all employers with 500 or fewer employees and contains three primary sections related to employers: Emergency Family and Medical Leave Act Expansion; Emergency Paid Sick Leave Act; and Tax Credits for Paid Sick and Paid Family and Medical Leave. The FFCR is slated to take effect April 2, 2020 and will expire on December 31, 2020.Continue reading “COVID-19: Family and Medical Leave Legislation”
On December 20, 2019, the President signed, “The Further Consolidated Appropriations Act” (H.R. 1865), which contained the “Taxpayer Certainty and Disaster Tax Relief Act of 2019” (“Act”). The Act contains two important changes to federal tax laws affecting nonprofits: (1) repeal of the parking tax and (2) reduction in the private foundation excise tax.Continue reading “Year-End Federal Tax Changes Benefiting NonProfits”
Following the Supreme Court’s June 2018 decision in South Dakota v. Wayfair, states have acted quickly to enact economic nexus laws to require remote sellers to pay sales tax. “Economic nexus” is the power of a state to compel remote sellers to pay sales tax on their transactions with purchasers in the state. As of October 1, 2019, economic nexus laws have gone into effect in all states with a statewide sales tax, except Missouri and Florida. States are using economic nexus laws to compel remote sellers, or sellers with no physical presence in the state, to collect sales tax if the seller’s economic activity in the state reaches a pre-determined threshold. Previous laws required the seller to have a physical presence within the state, such as a brick-and-mortar store, office, or warehouse.Continue reading “States Rush to Pass Economic Nexus Legislation”
Navigating the Possibility of Incurring UBTI
UPDATE: The Taxpayer Certainty and Disaster Tax Relief Act of 2019 retroactively repealed the tax on employee parking benefits for nonprofit employers by striking paragraph 512(a)(7) from the Internal Revenue Code. An organization that paid the tax may be eligible for a refund. To claim a refund, the organization needs to file an amended 990-T, as further explained by the IRS here.
Nonprofit organizations that provide employee parking benefits may be surprised to learn that they may be subject to incur unrelated business taxable income (UBTI). In addition, organizations with no UBTI may now be required to file form 990-T.
The Tax Cuts and Jobs Act (Act) amended Section 274 of the Internal Revenue Code (IRC) to disallow for-profit employers from deducting certain expenses related to transportation fringe benefits provided to their employees. The Act added IRC Section 512(a)(7) to what constitutes UBTI for nonprofits and other tax-exempt entities. The Act states that tax-exempt entities are required to increase their UBTI by expenses related to transportation fringe benefits provided to their employees. The transportation fringe benefits subject to this tax include expenses associated with:
Don’t be complacent.
Each year tax-exempt organizations in the United States receive hundreds of millions of dollars in donations. Donors contributing to 501(c)(3) organizations are able to deduct their own contributions from their taxes, subject to IRS limitations. Recently, a higher standard deduction has been put in place through the Tax Cuts and Jobs Act. This will likely diminish the number of taxpayers and donors who itemize their deductions, making it tempting for charities to assume that receipting donations is no longer important. However, charities should continue to exercise care in receipting donations for the benefit of the donor. Continue reading “Receipting Donations”