Nonprofit Update – Takeaways from the Taxpayer Certainty and Disaster Tax Relief Act

On December 20, 2019, President Trump signed the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the Act). Here are the Act’s major takeaways that can impact your organization:

UBIT Requirement Repealed Retroactively for Nonprofit Employers

In 2018, as part of the Tax Cuts and Jobs Act of 2017, Congress enacted Section 512(a)(7), which required nonprofit employers that provided qualified transportation fringe benefits, such as parking and transit passes to employees, to pay unrelated business income tax (UBIT) on the amount by which a deduction was not allowable under Section 274. Congress acknowledged to industry groups that nonprofit employee benefits like parking and transit assistance are not a trade or business conducted for the production of income. Therefore, under the Act, the UBIT requirement was repealed retroactively. Nonprofit employers are exempt from the tax for 2019 and can request a refund for 2018 by following the guidance on the IRS’s website.

Nonprofits that have existing UBI or operate taxable subsidiaries should remain vigilant, as the non-deductibility of these expenses was not changed under Section 274. As is consistent with meals and entertainment, these costs remain non-deductible to entities that have taxable income.

Cadillac Tax Repealed

Although not yet effective, the Act fully repeals the Cadillac tax on high-cost employer-provided health plans. Enacted as part of the Affordable Care Act, the Cadillac tax would have inflicted a 40 percent excise tax commencing in 2022 on employer-provided health plans that exceed $11,200 for an individual and $30,100 for a family.

Simplification of Private Foundation Excise Tax

The Act streamlines private foundation excise tax on investment income by replacing the two-tiered system (2 percent and 1 percent) with a revenue-neutral rate of 1.39 percent. This stable rate should ease the administration and monitoring of a foundation’s investments and grantmaking. The 1.39 percent tax rate is effective for tax years beginning after the date of the Act’s enactment (January 1, 2020 for calendar-year foundations).

To discuss any of the matters in this update in more detail, please call 724-934-0344.