Article written by:
Scott Eichar, CPA, CFP
Tax Senior Manager
Hannah Henderson, CPA
On December 20, 2019, the Consolidated Appropriations Act, 2020 (“The Act”) was signed into law. This is a Federal government spending bill that includes a wide range of provisions, some of which include changes to the 2017 Tax Cuts & Jobs Act that impact tax-exempt organizations. The Act repealed the tax on employer-provided parking for nonprofit organizations, simplified the private foundation excise tax and added special treatment on donations to public charities for disaster relief.
Parking Tax Repeal for Tax-Exempt Organizations
The Act repealed the very unpopular Section 512(a)(7) of the Internal Revenue Code, which was enacted as part of the 2017 Tax Cuts and Jobs Act, which required tax-exempt organizations to include in unrelated business taxable income the amounts they pay or incur on qualified transportation fringe benefits, such as parking. This meant that tax-exempt organizations were potentially subject to a 21% tax on parking and transit benefits provided to their employees. The Act repeals Section 512(a)(7) retroactively to the date of its enactment, allowing nonprofits to seek a refund for taxes paid previously.
Private Foundation Excise Tax Simplification
The Act also includes a simplification of the private foundation excise tax on investment income under Code Section 4940(a). A flat revenue-neutral rate of 1.39% will be replacing the current two-tiered system (2% and 1%). Previously, private foundations were subject to a 2% tax or 1% if the private foundation’s charitable distributions exceeded the average payout rate over the preceding five years. The 1.39% tax rate is effective for tax years beginning after the date of the enactment of the Act (January 1, 2020 for calendar year foundations).
Special Treatment on Donations for Disaster Relief
To ensure that individual donors do not run up against charitable tax deduction income limits, The Act creates a special temporary exception to those limits for disaster relief donations. The Act suspends the 60% adjusted gross income limit for individuals and the 10% taxable income limit for corporate taxpayers. The special treatment applies to contributions made in 2018 and 2019, as well as contributions made within 60 days after passage of the Act. The donor must obtain an acknowledgment from the charity that the donor’s contribution was used (or will be used) for disaster relief efforts. This allows donors to deduct the full amount of those contributions, even if the contributions exceed the 60% or 10% income limits.
If you have any questions about how these provisions impact your tax situation or how you can claim a refund for UBIT paid in previous years, please consult with a GBQ tax professional.