Tax Policy Issues

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Federal and state tax laws and policies govern many of the operations of charitable nonprofits. 501(c)(3) charitable nonprofit organizations typically are exempt from paying income and property taxes and donations to their work are deductible on federal and most state tax returns. Policymakers regularly review and propose changes to exemptions, operational rules, and giving incentives.

Charitable Giving Incentives

The tax laws at the federal level and in many states encourage individuals and businesses to give to charitable organizations whose missions they support by providing an itemized deduction or tax credit. The doubling of the standard deduction in the 2017 federal tax law appears to be changing giving patters as fewer taxpayers qualify for a tax incentive. This is leading many in the nonprofit community to advocate for new incentives, such as a non-itemizer, or universal charitable deduction.

Disaster Tax Relief (Federal)

In recent years Congress has responded to natural disasters by enacting a series of temporary tax provisions to assist taxpayers dealing with the aftermath of natural disasters. The temporary tax packages provide narrow incentives for giving to nonprofits engaged in disaster relief. (Trends & Policy Issues)

Estate Tax (Federal)

The federal estate tax is an essential source of revenue for the federal government and serves as an incentive for wealthier individuals to give back to their communities through charitable nonprofit organizations.

Unrelated Business Income Taxes (UBIT)

When tax-exempt charitable nonprofits earn income through an activity that is unrelated to their exempt purposes (such as activity that is commercial in nature, like sales of goods) and the activity is “regularly carried on,” the revenue from the activity may be taxable income under IRS rules for “unrelated business income taxation,” often referred to as “UBIT.” (Tools & Resources) The 2017 federal tax law imposed new taxes on tax-exempt organizations by expanding UBIT, the first one which was later repealed:

Nonprofit Nonpartisanship (Johnson Amendment)

For more than 65 years, an important provision in the federal tax code has successfully protected charitable nonprofits, religious congregations, and foundations from being hounded by politicians, political operatives, and paid political consultants seeking political endorsements, financial contributions, and more. That provision, sometimes called the Johnson Amendment, provides that in return for its favored tax-status, a charitable nonprofit promises the federal government that it will endorse or oppose a candidate for public office, and if it does, IRS regulations mandate that the charitable nonprofit will lose its tax-exempt status. (Trends & Policy Issues)

Taxes, Fees, and PILOTs (Payments in Lieu of Taxes) (State)

Every state exempts some or all of the properties owned by charitable nonprofits from property taxes. However, despite a lack of legal authority to do so, some municipalities attempt to impose discriminatory taxes or fees on nonprofits, or demanding so-called “voluntary” payments in lieu of taxes (PILOTs). Different jurisdictions call the assessment different terms – taxes, fees, or PILOTs – but the goal is the same, to divert nonprofit resources away from mission and into government coffers.

Volunteer Mileage Rate (Federal)

Volunteers who drive their vehicles when they perform work on behalf of a nonprofit are restricted in tax law to deducting only 14 cents per mile, a rate that is set in statute and has not been changed in years. 

Filing Requirements for Nonprofits (Federal)

Most charitable nonprofits that are recognized as tax-exempt have an obligation to file an annual information return with the IRS. There are very few exceptions: church-affiliated organizations and governmental organizations are among those not required to file. (Tools & Resources)

Revocation of Tax Exemption (Federal)

If your nonprofit fails to file its annual return (Form 990) for three consecutive years, the IRS will automatically revoke its tax-exempt status. This automatic revocation happens by operation of law – there are no exceptions. (Tools & Resources)

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