Washington Snapshot: Private Foundation Excise Tax; Taxpayer Certainty and Disaster Relief Tax Act of 2019; President’s 2021 Budget
In This Week's Edition of Snapshot...
- Private Foundation Excise Tax
- Taxpayer Certainty and Disaster Relief Tax Act of 2019
- UBIT Refunds
- Congressional Ties to Education
- President’s 2021 Budget
- Executive Branch and Regulatory Affairs
- Happening in the States
From the Council's Government Affairs Team
Private Foundation Excise Tax
The private foundation excise tax was modified from the historical two-tiered system to a flat rate of 1.39% when H.R. 1865 (116) was passed on December 20 and took effect upon President’s signature. The legislative language can be found in Division Q, Title II, Section 206 of bill. The Council on Foundations worked closely with allies to win this important simplification.
Due to the lack of written guidance at this point, the Council received clarification from its tax legislation experts this week that the reduction applies to taxable years “beginning after the date of enactment” (i.e., taxable years beginning after December 20, 2019). Thus, for a calendar-year foundation, the changes will not impact the 2019 tax year and will take effect in the 2020 tax year because such foundation’s taxable year begins January 1 of any particular year.
If a foundation’s financial year does not coincide with the calendar year, i.e., one whose tax year begins after December 20 but before January 1, it should consult its own financial advisor for how to proceed. However, it is unlikely that many, if any, foundations fit this scenario.
Taxpayer Certainty and Disaster Relief Tax Act of 2019
On December 20, 2019, the President signed the Taxpayer Certainty and Disaster Relief Tax Act designed to encourage public support for organizations providing disaster relief. Included among the provisions was a temporary enhanced tax benefit for donors making cash contributions to these charitable organizations. Specifically, the new law eliminates certain limitations that act to cap a taxpayer’s charitable tax deduction if the taxpayer makes a qualified contribution for disaster relief.
Following is a quick primer on what this means for donors:
Normally, individual taxpayers may claim a charitable tax deduction for a cash gift to a public charity up to an amount equal to 60% of the taxpayer’s adjusted gross income (AGI). Any amount that exceeds 60% of AGI may be carried forward for 5 years. Under the new law, this limitation is removed temporarily, and a taxpayer may claim a charitable deduction of up to 100% of AGI for a cash gift to a public charity supporting disaster relief.
To take advantage of the enhanced tax deduction, the following requirements apply:
- The contribution must be paid in cash during the period beginning January 1, 2018 and ending on February 18, 2020.
- The contribution must be made to a public charity (as opposed to a private foundation).
- The contribution must be made specifically for relief efforts in one or more areas for which a major disaster was declared by the President.
- The donor must obtain from the charity a contemporaneous written acknowledgment satisfying the normal IRS rules plus confirmation by the charity that the gift was used, or will be used, for relief efforts described in item 3.
- Contributions to supporting organizations defined in IRC 509(a)(3), or contributions to establish a donor advised fund, do not qualify for this benefit.
Other charitable deductions claimed by the taxpayer in the tax year will be taken into consideration so the enhanced deduction is allowed only to the extent it does not exceed the excess of AGI over these other charitable income tax deductions allowable under the normal rules. Because the benefit applies to contributions that were made in 2018, a taxpayer may need to file an amended 2018 tax return to claim the enhanced deduction.
News from the Hill
Congress retroactively repealed the unpopular unrelated business income tax (UBIT) when the budget bill was passed in December. This means that nonprofits and churches who paid the tax can now qualify for refunds. The problem is that the IRS has yet to issue guidance on how to do that.
House Ways and Means Chairman Richard Neal (D-MA) and Ways and Means Oversight Subcommittee Chairman John Lewis (D-GA) are asking the IRS to expedite the process to explain how these organizations can get their money back.
Stay tuned.
Congressional Ties to Education
More than 150 legislators serving in the 116th U.S. Congress have held jobs and/or positions in the education field, according to a POLITICO analysis of biographical information available in its Congressional Directory as of January 2020. (COF members can request an infographic by emailing govt@cof.org.) Twenty-nine senators and 141 representatives have backgrounds in teaching, education administration or education board membership. Thirty-five of these are on congressional committees overseeing education legislation, including two 2020 Democratic presidential candidates — Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA).
SALT Deduction Limit Suspension Cleared for House Vote
The House Ways and Means Committee cleared the way for a House vote next week on a two-year suspension of the $10,000 deduction limit on state and local taxes, or SALT. The bill, H.R. 5377 (16) eliminate the deduction limit in 2020 and 2021. Paying for it would be done by upping the top individual tax rate back up to 39.6 percent, while also installing marriage penalty relief for 2019.
Executive & Regulatory News
White House officials announced this week that the President’s annual budget to fund the government for FY 2121 will be unveiled on February 10.
Find the IRS report on 2019 operations here . The overview is meant to showcase the agency’s various operations across taxpayer service, compliance and support, such as the new withholding estimator to help taxpayers calculate how much tax to retain from their earnings following recent tax law changes.
Department of Education
Politico reports that the US Department of Education plans to scrutinize spending in 400 of the nation’s school districts later this year, under a new proposal to examine how states are using some $32 billion in federal money for elementary and high schools. The regulatory notice in the Federal Register was published on December 26. Comments will be accepted until February 24.
The department will analyze dollars spent on five fundamental government school programs: Part A of Titles I, II, III and IV of the Elementary and Secondary Education Act and Title I, Part B of the Individuals with Disabilities Education Act. The government hopes to learn how schools deploy federal money across programs to inform future rewrites of the law.
Department of Housing and Urban Development
HUD has announced the opening of the application period for the 2020 Department of Housing and Urban Development (HUD) Secretary's Award for Public-Philanthropic Partnerships. The Award, done in collaboration with the Council on Foundations, recognizes the excellence and innovation of cross-sector partnerships between foundations and government. Ten award recipients are selected annually, and this year’s awards program will be hosted by Secretary Ben Carson at HUD Headquarters in late spring.
Applications must be received by 11:59 p.m. PT Monday, February 3, 2020.
Happening in the States
Exclusive from our colleagues at the National Council of Nonprofits.
State Legislatures Coming Back in Session
By the end of next week, 34 state legislatures will have convened for their 2020 legislative sessions and all but four legislatures will meet in regular session this year. Session durations range from 29 days (Arkansas) and 30 days (New Mexico) to year-round (California, Illinois, Michigan, New Jersey, New York, Ohio, and Pennsylvania). More than 2,100 women serve in the 99 legislative chambers, making up 29 percent of all legislators nationwide, which the National Conference of State Legislatures observes is the most women elected at one time. Eight states currently have women serving as Speakers (CO, IA, ME, MD, MN, OR, VT, VA) and the Senate Presidents in six states are women (AK, AZ, KS, MA, NH, NY).
Nonprofits across the country are gearing up to engage on a wide range of issues affecting their missions and operations, but three key trends rise to the top of the agenda, based on extensive tracking and engagement at the state level. First, nonprofits are continuing to promote creation or expansion of non-itemizer or universal tax incentives to promote greater giving to support charitable works in communities. Advocacy work in New Jersey is the most active on this issue early in January. Nonprofits are also tracking state tax reform proposals because they often present challenges and opportunities for losing or expanding tax exemptions. Illinois nonprofits are anxiously awaiting the recommendations of a tax reform legislative task force to see how changes to property and sales taxes would affect their operations. Finally, multiple states are expected to raise wage protections (minimum wage and overtime), and establish paid leave and retirement programs that affect all private-sector employers and employees – affecting nonprofits, foundations, and for-profits alike. For example, later this month public meeting in Pennsylvania is scheduled to finalize a hike in the state’s overtime salary threshold to about $10,000 per year higher than the new federal Overtime Final Rule that went into effect January 1.
