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Not-For-Profit Update: Further Consolidated Appropriations Act, 2020

January 13, 2020
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Just a few weeks ago, we alerted our not-for-profit clients that on December 20, 2019 H.R. 1865, the Further Consolidated Appropriations Act, 2020 (the "Act") was signed into law by the president. Here are some provisions affecting tax-exempt organizations:

REPEAL OF TAX ON CERTAIN EMPLOYEE TRANSPORTATION FRINGE BENEFITS

Repeal is here! As discussed in our prior alerts, the Act includes a provision for the retroactive repeal of the unrelated business income tax on certain employee transportation fringe benefits.

As we discussed in our previous not-for-profit tax articles, the Tax Cuts and Jobs Act of 2017 (TCJA) created an unrelated business income tax on certain employee transportation fringe benefits of tax-exempt organizations. These benefits included employer-provided parking, parking passes, transit passes, bus or rail passes, van pools, and similar payments or reimbursements to cover an employee’s normal commuting expenses.

To say the unrelated business income tax on certain employee fringe benefits was not well received by the tax-exempt community would be an understatement. Almost immediately, from the time the TCJA was signed into law, tax-exempt organizations and their advisors have been calling for the repeal of this provision. Now, two years later, tax-exempt organizations have retroactive repeal.

We will keep you up-to-date on this matter as guidance is provided by the IRS or states regarding any special provisions or rules regarding obtaining refunds of previously paid tax.

SIMPLIFIED EXCISE TAX FOR PRIVATE FOUNDATIONS

In addition, Section 206 of the Act reduced the excise tax rate private foundations pay on net investment income under Internal Revenue Code Section 4940. The new excise tax rate of 1.39% replaces the old 2% excise tax rate and eliminates the reduced excise tax rule which allowed private foundations to reduce the excise tax rate form 2% to 1%. In essence, the new rate of 1.39% is a blended rate, which will allow for easier tax planning. The new rate goes into effect for tax years beginning after December 31, 2019. 

As always, we will keep you up-to-date on this matter as additional information and guidance is provided.