Demand Delay of New Taxes on Tax-Exempt Organizations
If you are reading this newsletter, your nonprofit organization likely is already liable for new taxes or is about to be socked with an unexpected tax bill as the result of the Tax Cuts and Jobs Act, the major federal tax law enacted in December. Hidden in the weeds of the new law are two new taxes on nonprofits’ “unrelated business income” that are surprising just about everyone. One provision requires tax-exempt employers to pay a 21 percent income tax on its expenses for employee transportation benefits such as transit passes and parking. Another tax change requires nonprofits with business income to pay the tax on each separate “trade or
business” and prohibits the blending of profits and losses across lines of business. Both technically became effective on January 1, 2018, with quarterly tax payments due on April 15 for many nonprofits. Problem is, the IRS hasn’t told anyone which transportation benefits are taxable or what types of activities constitute a separate “trade or business.”
Many questions must be resolved before nonprofits can know and manage their unexpected tax liabilities. Nonprofits have a right to insist that the government provide both the necessary official guidance for compliance and a reasonable transition period for nonprofits to develop the necessary record-keeping systems. We encourage you to join the National Council of Nonprofits, the American Institute of Certified Public Accountants, the American Society of Association Executives, and many others in calling on the Treasury Department and the IRS to delay the new taxes unless and until the government provides clear guidance. Here are two things you can do right now:
- Go to the IRS public comment form and insist that Treasury and the IRS delay implementing the two new UBIT subsections until one year after Final Rules are promulgated. (Fill in "Form 990-T" in the line: Form/Instruction/Publication Number.)
- Share with us both the comments you submit and the questions you have about the new taxes so we can work to get clear answers for you and all nonprofits.
See our blog post, Taxing Tax Exempts and Other Oxymorons in the New Tax Law, for more on the new taxes.
Questioning the Census Citizenship Question
The House Oversight and Government Reform Committee will hold a hearing on May 8 to investigate the inclusion of the citizenship question in the 2020 Census. The Commerce Department and U.S. Census Bureau are expected to explain why the decision was made to include a question about citizenship that has not been asked on the census questionnaire since 1950. When announcing the decision to include the question, Commerce Secretary Ross claimed the purpose is to help enforce the Voting Rights Act, an issue on which the Justice Department has filed no cases. The Census Bureau has previously provided research that a question on a person’s citizenship status would discourage participation in the count, which would in turn undermine a full and accurate count that is essential for proper allocation of $600 billion in federal dollars to all communities. Six former Census Bureau directors have warned that the move would depress responses among minorities who fear that the government would use that information against them, according to the New York Times. At an appropriations hearing earlier this month, Acting Census Bureau chief Ron Jarmin disagreed with the notion that the impact of the citizenship question on the count would be “minimal” and acknowledged that the impact “could be, in some communities, important.” The National Council of Nonprofits strongly opposes the inclusion of a citizenship question.
- Declining Refugee Rates: Less than half of the permitted number of refugees (21,000 of the allotted 45,000 placements) will be taken into the U.S. this year. This is the lowest refugee placement rate since Congress created the immigration resettlement system in 1980. Under the programs, the government typically works with nonprofits to assist refugees with housing and other support. New policies and the executive orders under the Trump Administration has put tight restraints on immigration and refugee settlement since the beginning of his presidency. The third iteration of the so-called travel ban is currently under consideration by the U.S. Supreme Court.
- Shrinking Number of Itemizers and SALT Deductions: An estimated 12.5 percent of all taxpayers (a drop of 61 percent) will choose to itemize their 2018 tax returns after the new tax law goes into effect, according to a Joint Committee on Taxation (JCT) report. The decrease represents 18 million taxpayers this year, down from 46.5 million in 2017. Additionally, the report projects that the tax benefits of the state and local tax (SALT) deduction will shrink from $109.5 billion to $20.2 billion in 2018 due to the new cap on the deduction at $10,000.
- Declining Government Employee Charitable Donations: The largest workplace campaign for charitable donations by federal workers, the Combined Federal Campaign (CFC), had a nearly 40 percent drop in donations this year according to recently released statistics from the U.S. Office of Personnel Management. Campaign pledges fell to $101 million this year, amounting to a $172 million decline from the $283 million raised during the height of the program in 2009. Charitable donations made to nonprofits
through the CFC in 2017 will be charged a 16.5 percent distribution fee, which are over and above the application fees and listing fees the nonprofit must pay to participate.
- Narrowing Food Assistance Access: Low-income families who rely on the Supplemental Nutritional Assistance Program (SNAP), commonly referred to as food stamps, could lose benefits under proposed legislation currently making its way through the House. Agriculture Committee Chairman Mike Conaway (R-TX) proposed the Farm Bill which includes increased work requirements, drug testing, and additional eligibility restrictions. An estimated 2 million low-income persons, particularly working families with children, could lose or see reduced benefits should the legislation pass as currently drafted. See Feeding America resources for more about the Farm Bill.
- Aiming to Repeal College and University Excise Tax: A bipartisan bill (H.R. 5220) to repeal the 1.4 percent excise tax on investment income of private colleges and universities under the new tax law has been introduced in the U.S. House. Representatives John Delaney (D-MD) and Bradley Byrne (R-AL) cited a request from nearly 47 college and university presidents to act as “the new tax establishes a precedent that threatens all charities.” The cosponsors warn that their legislation is
needed because “it is likely that more and more institutions will be subject to the tax in the future” because “the door is opened.”
Pay Equity, Employment Law Changes Advance in the States
With Congress not expected to address long-simmering employment law issues, the states continue their promotion of stronger and innovative workplace policies. New Jersey has enacted what is billed as the toughest pay-equity law in the country. The law, among other things, permits employee victims of pay discrimination to recoup up to six years of back pay and allows court awards of three times any monetary damages for unlawful employment practices, including pay discrimination against a protected class. It prohibits an employer from restricting an employee or potential employee from discussing or
disclosing compensation with others and sets guidelines to determine equity. A bill before the New York City Council would provide a private right of action to employees denied sick leave under the Earned Sick Time Act (ESTA). Both of those measures apply equally to for-profit and nonprofit employers. In Maryland, the Governor approved a bill that allows 501(c)(3) organizations the option of buying into the state employee health insurance program. It also establishes a study of health insurance
purchasing by state and local governments and nonprofits.
Vermont Considers Repeal of Charitable Deduction
The Vermont House passed a tax reform bill that, among other things, would eliminate the itemized deduction for charitable giving and replace it with a five-percent tax credit. The Governor first proposed the repeal-and-replace approach, but the House further restricted the incentive. The House-passed legislation would impose a cap on the tax credit at donations of $10,000 (for a maximum $500 credit). Under current law, an upper-income taxpayer who donates $100,000 can reduce state tax liabilities by $9,400 (9.4% tax bracket); under the proposal, the tax incentive would be capped at $500. A nonprofit community letter signed by more than 30 organizations expresses opposition to the reduction in the giving incentive. Nonprofits are preparing to challenge the adverse policy in the Vermont Senate in early May.
California Considers Crowdfunding Legislation
A bill before the California Assembly would create rules for charitable crowdfunding solicitation to address issues such as obtaining the written consent of a charitable organization prior to using its name, timelines for distribution of funds, and other definitional questions. Similar legislation in other states is anticipated. While many nonprofits have successfully raised funds through crowdfunding platforms (PayPal, GoFundMe, Indiegogo, Network for Good, Facebook, etc.), there is growing concern that donations are not getting to designated nonprofits. For instance, one lawsuit
alleges that the PayPal giving platform re-direct funds to charitable organizations other than those designated by donors without informing donors. There are also reports that scam artists are raising money supposedly for nonprofits but taking the money themselves, that platforms are taking large undisclosed cuts of donations, and so forth. CalNonprofits, the state association of nonprofits, has created a seven-question survey to hear more about the experiences of nonprofits and donors.
Court Rules Public Cannot Fund Church Restoration
Public funds can no longer be given to churches for historical restoration, according to a recent New Jersey Supreme Court decision citing a state constitutional clause expressly forbidding the practice. The case arises from a violation of the state-specific religious aid clause by a county board that has provided more than $4.6 million in historic preservation grants to 12 churches to restore facades, stained glass windows, and aging roofs. The U.S. Supreme Court decided last year that state funds may be used for religious groups in certain circumstances, but did not address buildings used for religious
purposes. The New Jersey decision may have far-reaching effects on separation of church and state for public funds that must be used for public benefit.
Taxes, Fees, and PILOTs
- Property Taxes: In an move ostensibly to expand the tax base, a Connecticut municipal tax assessor has issued revocations of dozens of property tax exemptions for nonprofit organizations. Norwich Assessor Donna Ralston claims that the organizations “can be considered a tax-exempt use by the state and the feds, and still be a taxable use in the city.” Ralston is refusing any presumption of automatic exemption despite organizations receiving exemption from
filings with the state and federal governments for years, sometimes decades. Tax revenues from the revocation pale in comparison to the economic impact nonprofits bring to the area according to a coalition of nonprofit organizations. Local arts and culture nonprofits produced an estimated $168 million in economic impact in the area in 2015. Gian-Carl Casa, president and CEO of the state association of nonprofits, CT Community Nonprofit Alliance, said this may be a broader trend in Connecticut.
- PILOTs: The Stockbridge, Massachusetts Board of Assessors recently held a public hearing to consider input to institute a payment in lieu of taxes (PILOT) program. The board is looking to other communities in the commonwealth for guidance on how to structure a plan to secure funding from nonprofits that are exempt from property taxes. Voters will be asked in May to consider a nonbinding ballot question on establishing a PILOT program. Seven nonprofits in the area have contributed payments totaling $72,549 in the past year, according to the local treasurer.
California Hospitals Ordered to Provide Greater Community Benefits
California hospitals must satisfy charity care obligations by making payments to other charitable organizations, Attorney General Becerra announced earlier this month. The hospitals had requested “more flexibility” and reductions in their payment obligations because more people are covered under the Affordable Care Act (Obamacare) and therefore there is less need for charity care. As a result of the Attorney General’s decision, nonprofits and other medical service providers that serve low-income and homeless residents should receive more than $5.3 million in payments from the
Recognizing Public Servants Excellence in Government and Nonprofits
Public servants, whether in government or nonprofits, rarely get the recognition they deserve for selfless dedication to the work they do to make their communities better. But through awards programs and conscious attention to celebrating excellence, both the public servants and the public benefit. Below are three excellent examples of appreciating excellence. Each provides advocacy opportunities worthy of this Advocacy in Action article.
May 6 through 12 marks Public Service Recognition Week, a national celebration started in 1985 to “honor the men and women who serve our nation as federal, state, county and local government employees.” These public servants often actively engage with nonprofits to build
relationships to solve the most pressing problems in their communities. Government leaders and public servants are encouraged to show appreciation by “sharing stories of excellence” via proclamations, award ceremonies, and special tribute events. The celebration offers a unique opportunity for nonprofits to build relationships with local public servants who have helped them advance their missions.
The Massachusetts Nonprofit Network, a state association representing more than 700 nonprofits in the Commonwealth, started a statewide Nonprofit Awareness Day in
2008, which is now a statewide event celebrating its 10th Anniversary. Each year MNN “honors the passion and impact of nonprofit professionals and organizations” with the Nonprofit Excellence Awards that “highlight the incredible work of nonprofit professionals and organizations across the state in six categories” that “represent the best-of-the-best in the sector.” Advocacy excellence is one of the highly sought awards.
The Minnesota Council of Nonprofits (MCN) just closed out nominations for its 2018 Leadership Awards to be presented at the Nonprofit Leadership Conference in June. The awards began in 2010 to “recognize the passion and energy of individual leaders at various stages in their nonprofit careers.” Awards are presented in three categories: Catalytic Leader (emerging leader award), Visionary Leader (mid-career leader award), and Transformational Leader (experienced leader award). Prizes include registration for events and trainings held by MCN for one year.