The new unrelated business income taxes (UBIT) on nonprofits, which took effect on January 1, 2018, imposed an income tax on expenses of nonprofits under the 2017 federal tax law. A bipartisan tax package included the repeal of the tax on nonprofit transportation benefits [1]. The Internal Revenue Service issued guidance regarding how organizations can claim a refund [2] for taxes paid under 512(a)(7). 

Why It Matters

In addition to diverting resources away from nonprofit missions, the tax was imposed largely to reduce the overall costs of the Tax Cuts and Jobs Act, a law that provided large tax cuts to corporations and wealthier taxpayers. It was justified at the time as providing parity with for-profit businesses that were no longer permitted to deduct transportation benefit costs. Further, the tax was exceedingly vague, and required complex analysis and cost calculations to determine whether nonprofits expend enough on parking to be liable for the tax.

Where We Stand

Nonprofits received little, if any, gains under the Tax Cuts and Jobs Act and yet are now subject to a new, illogical income tax on transportation benefits in the name of “parity.” We and many in the community consider the “parity” argument a false equivalency, and believe that repeal is appropriate.

Letter to Incoming Tax Committee Chairs [3], November 26, 2018

Status

On December 22, 2017, President Trump signed into law Public Law No. 115-97 [4], unofficially called the Tax Cuts and Jobs Act, which imposed a 21-percent unrelated business income tax on nonprofits for expenses they incurred in providing their employees with transportation fringe benefits, such as parking and transit passes. In December 2018, the Treasury Department and the IRS provided partial guidance on how to calculate this new tax on parking expenses, but assumed that all expenses for bus and transit passes were subject to the tax. In both parking and transit benefits, the government required the nonprofit employer to pay the tax on amounts employees requested to be withheld from their paychecks pursuant to voluntary compensation reduction agreements. 

Section 512(a)(7) was terrible tax policy and there was no support in the House or the Senate for retaining it. Read the National Council of Nonprofits' written testimony [5] and statement [6] in support of repealing the tax.A bipartisan tax package included the repeal of the tax on nonprofit transportation benefits [1]. The U.S. House of Representatives passed the bill on December 17, 2019, and the Senate passed it two days later, which the President subsequently signed. The package was offered by Appropriations Committee Chair Lowey (D-NY) as an  amendment - Section 302 of the manager’s amendment [7], which was added to H.R. 1865 - National Law Enforcement Museum Commemorative Coin Act [Further Consolidated Appropriations Act, 2020] [8], the "minibus" that funds eight federal departments and more. 

The Internal Revenue Service issued guidance regarding how organizations can claim a refund [2] for taxes paid under 512(a)(7). The National Council of Nonprofits responded to the guidance [9] and expressly thanked Senators Lankford (R-OK) and Coons (D-DE), House Majority Whip Clyburn (D-SC), and Representatives Walker (R-NC) and Suozzi (D-NY) as well as Chairs Neal (D-MA) and Lewis (D-GA) for their work in support of charitable organizations. 

Background

There was broad, bipartisan support for repealing the tax on tax-exempt organizations. In fact, there was not a Senator or Representative on record supporting keeping the tax. 

Several bills in the 116^th Congress, HR 1223 [10] by House Majority Whip Clyburn (D-SC) and HR 513 [11] by Representative Conaway (R-TX), would have repealed the tax. Two bipartisan bills were introduced in the Senate. The “Lessen Impediments From Taxes for Charities Act” or the “LIFT for Charities Act” (S.632 [12]) was introduced in the Senate by Senators Lankford (R-OK) and Coons (D-DE). See the news release [13]. Representative Walker (R-NC) introduced a companion bill (H.R. 1545 [14]) in the House. More recently, Senators Cruz (R-TX) and Shaheen (D-NH) introduced the "Preserve Charities and Houses of Worship Act" (S.1282 [15]) to repeal Section 512(a)(7). The House Ways and Means Oversight Subcommittee announced a hearing [16] on "Ending the TCJA Tax on Houses of Worship, Charities, and Nonprofits" on June 19, 2019.

The IRS issued guidance [17] on December 10, 2018, for calculating parking expenses for unrelated business taxable income purposes and provided penalty relief to nonprofits. The guidance is incomplete, costly, and raises even more confusion for nonprofits struggling to comply. See the IRS News Release [18] and National Council of Nonprofits summary [17] and public comments [19].

On January 8, 2020, House Ways and Means Committee Chair Neal (D-MA) and Oversight Subcommittee Chair Lewis (D-GA) sent a letter to the IRS Commissioner [20] asking the Service to create an expedited process for nonprofits to quickly secure refunds for any taxes paid under the now-repealed tax on nonprofit transportation benefits. The IRS issued guidance on How to Claim a Refund of Unrelated Business Income Tax on the Form 990-T [2] on January 22, 2020.

Take Action

• Determine whether your organization needs to claim a refund [2].
• Thank your Members of Congress for the repeal of the unfair tax on nonprofit transportation benefits.

Resources

• How To Claim a Refund or Credit of Unrelated Business Income Tax (UBIT) or adjust Form 990-T for Qualified Transportation Fringe Amounts [2], Internal Revenue Service, January 22, 2020.
• Statement on IRS Guidance for nonprofits to claim refunds for transportation UBI taxes paid [9], National Council of Nonprofits, January 22, 2020.
• Letter to IRS Commissioner [21], Representatives Neal and Lewis, January 8, 2020.
• Manager’s Amendment [22] (tax provisions in year-end appropriations bill), December 17, 2019.
• Nonprofits and Foundations Poised to Score Victories in Tax Legislation [23], Chronicle of Philanthropy, December 17, 2019.
• House passes $426B tax cut [24], Politico, December 17, 2019.
• Transportation Benefits Tax Axed From House Bill [25], The NonProfit Times, December 17, 2019.
• Letter to Congressional Leadership re Urgent Need to Repeal UBIT on Nonprofit Qualified Parking and Transportation Fringe Benefits [26], UBIT Coalition, November 13, 2019.
• Dear Colleague Letter from House Majority Whip Clyburn and Representative Maloney in support of H.R. 1223 and H.R. 3323 [27], July 12, 2019.
• Bipartisan Support Demonstrated for Repeal of Tax on Nonprofit Transportation Benefits [28], National Council of Nonprofits, statement, June 20, 2019.
• Letter to the Committee on Ways and Means re Unrelated Business Income Tax on Nonprofit Transportation Benefits [29], Witnesses from ASAE, Emory University, Harc, National Council of Nonprofits, and Orthodox Union Advocacy Center, hearing cancelled, June 19, 2019.
• Nonprofits Applaud Progress on Repealing Tax on Nonprofit Transportation Benefits [6], National Council of Nonprofits, statement, June 18, 2019.
• Statement to the Committee on Ways and Means re Ending the TCJA Tax on Houses of Worship, Charities, and Nonprofits [5], Testimony of David L. Thompson, National Council of Nonprofits, hearing cancelled, June 18, 2019.
• Today is Nonprofit Tax Day: Burdensome Federal Tax on Nonprofits Must Be Repealed [30], Nonprofit Coordinating Committee of New York, May 15, 2019.
• $600+ Million [31], Joint Committee on Taxation, May 8, 2019.
• Letter to Chairmen Neal and Grassley [32], More than 600 Organizations, April 9, 2019.
• UBIT Benefits Discussed At Capitol Hill Hearing [33], The NonProfit Times, March 28, 2019.
• Statement to the Committee on Ways and Means re The 2017 Tax Law and Who It Left Behind [34], National Council of Nonprofits, March 27, 2019.
• Legislation To Repeal Nonprofit Tax Getting Bipartisan Support [35], The NonProfit Times, March 7, 2019.
• Sens. Coons, Lankford & Rep. Walker Re-introduce LIFT for Charities Act [13], news release, February 28, 2019.
• IRS Notice on Transportation UBIT [17], National Council of Nonprofits, summarizing IRS Notice 2018-99 and Notice 2018-100 regarding the tax on nonprofit transportation benefits.
• Comments to the IRS Notice 2018-99 [36], Center for Non-Profits (NJ), February 22, 2019.
• Comments to the IRS Notice 2018-99 [37], Michigan Nonprofit Association and Council of Michigan Foundations, February 22, 2019.
• Letter to Representative Neal - Repeal of IRC Section 512(a)(7) [38], Providers' Council and Massachusetts Nonprofit Network, February 22, 2019.
• Comments to the IRS Notice 2018-99 [19], National Council of Nonprofits, February 20, 2019.
• Comments to the IRS Notice 2018-99 [39], Washington Nonprofits, February 2019.
• Comments to the IRS Notice 2018-99 [40], YMCA of the USA, February 19, 2019.
• Letter to Representative Clyburn - Stop the Tax Hike on Charities and Places of Worship Act [41], National Council of Nonprofits and Together SC, February 14, 2019.
• Comments to the IRS Notice 2018-99 & 2018-100 [42], CT Community Nonprofit Alliance, February 4, 2019.
• Letter to Congressional Leadership Urging Repeal of Nonprofit Transportation Benefits [43], National Council of Nonprofits, December 17, 2018.
• National Council of Nonprofits Applauds Bipartisan Letter Calling for Delay of New Taxes on Tax-Exempt Organizations [44], statement, November 28, 2018.
• Letter to Treasury Secretary Mnuchin [45] from Senators James Lankford (R-OK) and Chris Coons (D-DE), November 27, 2018, calling for a delay in implementing both new taxes on nonprofits.
• Updated Letter to IRS/Treasury requesting delay in implementation of the new UBIT provisions in Public Law No. 115-97 [46], National Council of Nonprofits, July 21, 2018.
• Taxing Tax Exempts and Other Oxymorons in the New Tax Law [47], Jennifer Chandler and David L. Thompson, National Council of Nonprofits blog, April 30, 2018.
• Preliminary Letter to IRS/Treasury requesting delay in implementation of the new UBIT provisions in Public Law 115-97 [48], National Council of Nonprofits, April 24, 2018.
• Unrelated Business Income Taxation [49], National Council of Nonprofits
• Resources on How the New Federal Tax Law Impacts Charitable Nonprofits [50], National Council of Nonprofits
• Joint Explanatory Statement of the Committee of Conference [51], at pages 410-411, U.S. Congress