Year-End Federal Tax Changes Benefiting NonProfits
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.
Parking Tax Repeal
The Act repeals Internal Revenue Code (Code) § 512(a)(7), which subjected nonprofit employers to unrelated business income tax or “UBIT” for parking and transit fringe benefits provided to employees. Passed under the 2017 Tax Cuts and Jobs Act, Code § 512(a)(7) created a 21% tax on employers who provide transit and parking benefits to employees. This tax caused many nonprofits to increase tax liabilities in 2018 and 2019. Now, nonprofits are no longer subject to the tax. In addition, the repeal is retroactive, so nonprofits who already paid the tax in 2018 and 2019 can apply for refunds.
Private Foundation Excise Tax
Previously, a private foundation was subject to a 2% percent excise tax, however, the 2% excise tax can be reduced to 1%, if that private foundation made higher than its required charitable distributions to public charities. Some private foundation administrators criticized the dual excise tax structure as cumbersome to administer and difficult to calculate throughout the year. Now, under the Act, all private foundations are subject to a flat excise tax of 1.39%.
This article is provided for general information and should not be relied upon as legal advice for a specific situation. If you are in need of specific advice or legal representation, please do not hesitate to contact us.
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