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December 22, 2019

Extenders Bill Brings Big Changes for Not-for-Profits

Extender's Bill

An appropriations bill passed on December 20 contains a gift for not-for-profit organizations. The so-called Further Consolidated Appropriations Act, 2020 (FCAA) provides a long-awaited solution for not-for-profits that provide certain transportation and parking benefits to their employees. It also contains retirement plan benefits and reinstates other expired tax incentives (the so-called “Extenders”).

Background

The tax reform law commonly known as the Tax Cuts and Jobs Act (TCJA) classified certain transportation and parking expenses a not-for-profit incurs on behalf of its employees as unrelated business taxable income (UBTI). Calculating the employees’ share of an organization’s parking expense proved complicated (to say the least). The requirement also necessitated that many organizations that previously had no UBTI to file a Form 990-T, Exempt organization Business Income Tax Return, and pay federal and state UBTI tax for the first time.

Back in the summer, the IRS indicated that it would revisit the UBTI calculation and look for solutions to streamline the process not-for-profit organizations use to determine how much of their total parking expense could be attributed to employees. The FCAA contains a provision that delivers an immediate (and more comprehensive) fix.

Parking Expense Tax Repealed

The FCAA repeals the parking expense “tax” on not-for-profits. Not-for-profit organizations would not be subject to the requirement to include the costs of so-called qualified transportation and qualified parking benefits in taxable income, retroactive to the date the requirement took effect (generally Jan. 1, 2018). Employee parking expenses of for-profit companies remain nondeductible.

Further guidance is expected from regulators to clarify how not-for-profits could retroactively amend any 2018 tax returns and obtain refunds of previously paid UBTI attributable to qualified transportation fringe benefits.

Changes for Foundations

Another provision within the FCAA affects private foundations. The FCAA lowers the excise tax rate private foundations incur on net investment income from 2% to 1.39% and eliminates eligibility for a reduced 1% rate on such net investment income.

Next Steps

For a more in-depth look at what the act contains, please see our article, Congress Reaches Deal to Renew Expired Tax Incentives and Provide New Tax Relief Measures. If you have any comments, questions or concerns about how this Act could affect your organization, please contact us.

Related Reading

2019 Individual Tax Planning Supplement

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