Washington Snapshot: Interim Guidance on UBIT for Fringe Benefits Issued, House Again Attacks Johnson Amendment

In This Week's Edition of Snapshot…

• Treasury Issues Interim Guidance on UBIT for Fringe Benefits
• House Includes Anti-Johnson Amendment Language in Revised Tax Bill
• Senate Confirms Treasury Deputy Secretary
• Cuomo Signs Bill Killing State Nonprofit Transportation Tax

News from the Hill

Treasury Issues Interim Guidance on UBIT for Fringe Benefits

On Monday, Treasury and IRS issued Notice 2018-99 to provide interim guidance to charities for calculating unrelated business income taxes (UBIT) on parking and transportation benefits. This new tax on nonprofits was passed into law under the 2017 tax code overhaul.

Effective Jan. 1, 2018, any charity that provides parking or transportation benefits to employees became liable for UBIT on these benefits. Although the structure of this tax is counterintuitive (and the Council continues to fight for its repeal), it is the law and these taxes will be due at the end of the 2018 tax-filing season.

The guidance states that any organization providing subsidies for parking or transportation (up to $260 per employee per month) will be liable for a 21% tax (the current corporate tax rate) on the total amount.

If an organization owns or leases parking spots, the amount of UBIT owed will depend on A) whether parking spots are reserved for employees or other visitors, and B) both whether parking is also available for public use, and the number of spots available for public use as a percentage of total spots.

Current law does not require organizations with total UBTI liability that is less than $1,000 to file the Form 990-T and provides a $1,000 specific deduction to eliminate the taxes that would otherwise be owed.

For more information, please see the Council’s website. The Council also strongly urges members to seek a professional opinion on your specific situation from a tax lawyer or certified public accountant.

House Includes Anti-Johnson Amendment Language in Revised Tax Bill

After House Republicans pulled consideration of a year-end tax bill last week due to concerns it lacked enough support to pass, House Ways and Means Chairman Kevin Brady (R-TX) released an updated version of the legislation earlier this week. While the new bill still contains a provision to repeal the unrelated business income tax (UBIT) on transportation and parking benefits for nonprofits, Chairman Brady also included language that would effectively destroy the Johnson Amendment—which prohibits charitable 501(c)(3) organizations from participating in, or intervening in (including the publishing and distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

The Council joined with other sector partners, including the National Council of Nonprofits, in sending a letter to every House member denouncing the inclusion of this provision in Chairman Brady’s bill.

The letter notes, “We recognize that there are provisions in the legislation that, if enacted, would promote sound public policy or reverse some of the adverse consequences of the Tax Cuts and Jobs Act, such as repeal of the new tax on nonprofit transportation benefits. It is unfortunate that the repeal of tax policies that harm the broad nonprofit community (such as the repeal of Sec. 512(a)(7)) would be held hostage by a self-serving provision, like Section 407, that is strongly opposed by the charitable organizations that serve the constituents of every member of Congress each day.”

The Council will continue to work with our partners in the philanthropic sector to prevent any weakening or repeal of the Johnson Amendment.

Senate Confirms Treasury Deputy Secretary

On Tuesday, the Senate voted to confirm Justin Muzinich as the deputy Treasury secretary, the number two position at the Treasury Department behind Secretary Steven Mnuchin. According to the Wall Street Journal, “Mr. Muzinich helped develop last year’s tax law and guide it through Congress. Before entering the government, Mr. Muzinich was president of Muzinich & Co., an international investment firm. He also worked on former Florida Gov. Jeb Bush’s tax plan during the 2016 presidential campaign.”

Executive and Regulatory Affair

White House Chief of Staff to Leave

Last week, President Donald Trump announced that White House Chief of Staff John Kelly would be departing his position later this month. According to NPR, “[Mr.] Kelly took over as chief of staff six months into Trump's presidency, and he initially helped bring military discipline to a sometimes chaotic White House. But Kelly ran afoul of the president, who doesn't like feeling ‘managed,’ and gradually relaxed his grip on the West Wing.”

President Trump has not yet named a replacement for Mr. Kelly, and the Washington Post reported earlier this week that he may stay on as chief of staff into next year in order to smoothly transition the post to his replacement. The different timeline from what the president originally offered is likely because, “the process of selecting a successor was thrown wide open Sunday after Nick Ayers, [President] Trump’s leading pick to take over the job, decided instead to depart the White House. Ayers serves as chief of staff to Vice President Pence.”   

Happening in the States

Exclusive from our colleagues at the National Council of Nonprofits.

Cuomo Signs Bill Killing State Nonprofit Transportation Tax

Earlier this year, legislators in New York passed a bill essentially declaring—on a bipartisan basis— that taxing nonprofit transportation benefits like the federal government has done in the Tax Cuts and Jobs Act is unjustifiable and bad tax policy. The additional tax burden arose from the federal tax law that imposed a new 21-percent unrelated business income tax (UBIT) that nonprofits must pay for the expenses for transportation benefits, like transit passes and parking. Over the weekend, New York Governor Andrew Cuomo signed legislation into law that decouples New York from federal tax law to prevent an automatic tax hike on nonprofits. New York imposes a nine-percent unrelated business income tax on nonprofits for all income taxable under federal tax law.

The bill signed by the Governor makes clear that a state tax does not apply to nonprofit transportation benefits, and the clarification is retroactive to the beginning of this year. The New York Council of Nonprofits, Nonprofit Coordinating Committee of New York, and many other nonprofits in the state advocated for the legislative fix, stating in a joint letter, “The bill addresses the pressing need to amend the New York State Tax Law to correct an unintended new tax which was inadvertently created by recent changes made in the Federal Internal Revenue Code.” The nonprofits explain, “Without such a correction, nonprofits may be subject to millions of dollars in taxes in 2018, diverting critical funds from the services nonprofits provide throughout New York.” New York becomes the second state, after North Carolina, to decouple certain state taxes on nonprofits from federal taxes.