Congress Acts to Repeal Tax on Tax Exempts,
Extend Other Tax Provisions, Fund Federal Government
Later this week, Congress is expected to finish its work for the year and, as hoped, will have some significant results that matter to charitable organizations and the people we serve. In this special joint edition of Nonprofit Knowledge Matters and Nonprofit Advocacy Matters, we summarize the news in three major developments: Repeal of the tax on nonprofit transportation benefits, extension of a collection of expired tax breaks, and bills to fund the federal government through the 2020 fiscal year that started on October 1, 2019. All of these provisions are being wrapped up into two appropriations bills, nicknamed Mini-bus #1 and Mini-bus #2.
Repealing the Tax on Nonprofit Transportation Benefits
Legislation that repeals the tax on nonprofit transportation benefits passed the House of Representatives this afternoon as part of a large bill that also includes hundreds of billions of dollars in funding for several federal departments and a package of other tax provisions (H.R. 1865). The 2017 tax law imposed an unrelated business income tax of 21 percent on the expenses nonprofits incur for providing employee benefits like subway and bus passes and employee parking. The House-passed provision, if approved by the Senate and signed by the President, would repeal the tax retroactively, thus treating the liability as if it never happened.
In dramatic fashion, lawmakers kept nonprofits waiting to the last moment to learn whether the multifaceted advocacy efforts had paid off. For nearly two years, nonprofits throughout the country have called, written letters, emailed, tweeted, and traveled to DC to explain the harmful consequences on the tax on nonprofit transportation benefits. In the very early hours of Tuesday, December 17, the House Rules Committee posted a 58-page package of amendments to H.R. 1865, one of the two large appropriations bills. The provision of greatest interest to most charitable nonprofits, houses of worship, and foundations was the very last one, Section 302. Meaning that it’s the last item on the last bill likely to be enacted in 2019. That gives new meaning to the term “nail biter.”
Operations Note: Once enacted, nonprofits that paid the benefits-related unrelated business income tax will be entitled to a refund of the taxes paid, but not the administrative and accounting expenses incurred in calculating it. While filing amended tax returns is the normal way to claim refunds, the IRS may be convinced to develop an alternative or streamlined approach in the near future.
Congress to Reform Foundation Excise Tax,
Extend Tax Breaks
The tax package also includes a provision (Section 206) that replaces the two-tier excise tax that private foundations pay on investment income with a flat-rate excise tax rate of 1.39 percent. Reform of the excise tax has been a decade-long priority for the foundation community. The package also restores and extends nearly three dozen tax breaks for individuals and corporations, items ranging from race horses to empowerment zones and energy efficiency.
The Bill’s Called What?
The legislation that includes repeal of the nonprofit tax and spending for much of the federal government is officially named H.R. 1865, the National Law Enforcement Museum Commemorative Coin Act. Why?
Because time is running out and it’s faster to take a bill that has already passed and replace all the legislative language. While the official name remains, the bill will henceforth be called either “Further Consolidated Appropriations Act, 2020” or “Mini-bus #2” (which is a play on the usual term for an enormous bill, an "omnibus." The other appropriations bill, Mini-bus #1, is officially called H.R. 1158, the DHS Cyber Hunt and Incident Response Teams Act of 2019. Yes, it’s confusing, but it works.
The underlying appropriations bill, H.R. 1865, also includes several major tax policy changes. It repeals three taxes in the Affordable Care Act (Obamacare): the medical device excise tax; the annual fee on health insurance providers; and a special tax on certain employer-sponsored health plans (nicknamed the Cadillac tax). Further, the bill enacts the Setting Every Community Up for Retirement Enhancement (SECURE) Act, a popular package of retirement security provisions that had passed the House by awide margin earlier this year.
All combined, the end-of-tax measures are estimated to cost $428 billion over 10 years.
Funding the Federal Government
Certainly not the least of Congress’ achievements this week will be the passage of all 12 appropriations bills that fund the federal government in two separate bipartisan measures. In total, the two bills spend $1.4 trillion in fiscal year 2020, providing $49 billion in extra funding across the government. Passage of these bills before Friday, December 20 will avert a federal government shutdown due to the expiration of a short-term funding bill.
- R. 1158, The Consolidated Appropriations Act, 2020: The first bill funds the federal Departments of Commerce, Defense, Homeland Security, Justice, Treasury, and general government operations. See division-by-division analysis. Price tag: $860 billion
- R. 1865, The Further Consolidated Appropriations Act, 2020: The second bill provides appropriations for the remaining federal departments and programs. The legislation contains numerous spending hikes of interest to charitable organizations, including an increase of $3.5 million for AmeriCorps, $5 million more for the emergency Food and Shelter Program, and a $7 million increase for the Volunteer Income Tax Assistance (VITA) program, to highlight a few. H.R. 1865, as amended also includes the tax measures discussed above, as well as several other policy changes, such as an increase in the minimum age for purchasing tobacco products. See division-by-division analysis. Price tag: $540 billion.
These bills have passed the House and are expected to be enacted by the end of the week. But many intervening events, including caustic partisanship, can still interfere with these expectations.