Nonprofits Seek Delay in New UBIT Rules’ Implementation

Nonprofits Seek Delay in New UBIT Rules’ Implementation

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Nonprofit representatives have asked the IRS and Treasury to delay implementing new unrelated business income tax rules until after guidance is published.

Charities have grave concerns regarding the UBIT provisions enacted as part of the Tax Cuts and Jobs Act (P.L. 115-97), the National Council of Nonprofits said in an April 24 letter delivered at a meeting with Treasury officials. Section 512(a)(6) directs exempt organizations to calculate their unrelated business income separately for each business activity but does not say what constitutes a separate trade or business, while section 512(a)(7) “inexplicably” uses UBIT liability to tax expenses for employee fringe benefits, the council’s Jennifer Chandler and David L. Thompson wrote.

Because the two subsections appear to tax nonprofits in “strange and inexplicable ways,” Treasury and the IRS should immediately delay their implementation until one year after final regulations are promulgated, according to Chandler and Thompson. The delay should be retroactive to January 1, 2018, and Treasury and the IRS should work with nonprofits to resolve the “great confusion and operational compliance challenges” resulting from the provisions’ wording, they added.

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Tax Notes
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