Sens. Chris Coons, D-Delaware, and James Lankford, R-Oklahoma, co-chairs of the National Prayer Breakfast and the Senate Prayer Breakfast, sent a letter to Secretary of the Treasury Steven Mnuchin expressing their concerns about the challenges faced by tax-exempt organizations, such as charitable nonprofits, houses of worship and foundations, regarding compliance with new tax liabilities.
Enacted in December 2017, the Tax Cuts and Jobs Act applies the Unrelated Business Income Tax, UBIT, of 21 percent to tax-exempt organizations in an unprecedented manner. Historically, nonprofits have paid UBIT if they operated unrelated businesses or trades. However, under the new law, nonprofits must now use a significantly different method of calculating and reporting the income and loss for each unrelated business or trade in ways that are unclear. The new law also directs nonprofits to pay UBIT on employee benefits, such as transit passes, parking spots and provided meals for the first time.
“Nonprofits in Oklahoma, Delaware and all across the country provide countless services to Americans in need, including combating homelessness, lifting faith, providing health care to the medically underserved, and improving outcomes for disadvantaged youth,” wrote the senators. “Employees of nonprofits often have the same access to parking and meals that others in the community have because the nonprofit serves the whole community. Eating a meal with the homeless in their shelter should not be a taxable benefit for their employees; it is part of the work of the nonprofit.”
“Requiring these organizations to pay a federal tax on these employee benefits, something they have never been required to do before, will cause them to not only face an increased operating cost, but also an administrative burden.”
The new tax liabilities took effect Jan. 1, 2018, giving nonprofits just a few days over the holidays to understand and adapt to the new tax liabilities and budget for the unanticipated costs. Many organizations were in the middle of their fiscal years at the time and had to adjust their systems and procedures retroactively. Additionally, Treasury and the IRS have not issued final rules on either section of the new law, leaving many questions unanswered for charities, houses of worship, foundations and other tax-exempt organizations and their professional advisers, despite these organizations writing to the department and IRS.
The letter written by Coons and Lankford urges the Department of the Treasury and the IRS to delay the implementation of the new UBIT sections until one year after the Final Rules are issued. The delay would provide additional time for the department to work with Congress and the tax-exempt community to address the confusion and operational compliance challenges faced by charitable nonprofits, houses of worship, and foundations so that they are able to continue providing critical services to communities without undue burden or interruption.
The full text of the letter is available at bit.ly/2FMNaDz.