Editor’s Note: We’ve updated our newsletter schedule to track with the end of congressional sessions to highlight the most important developments here in Washington. The timing will vary, based on the congressional calendar, but you can expect a newsletter from us about once a month. In the meantime, we’ll be sharing significant developments through our email News Alerts and in real time on our Twitter feed (@ACReform) through our #HillScoop and #SectorScoop updates.
>> Federal: Congress: PF Excise Tax Simplification and UBIT Repeal Signed into Law!
>> Federal: Treasury: New Tax on Family Businesses, Family Foundations and Other Nonprofits
>> State: Donor-Advised Fund Legislation in California
>> Federal: ACR in the New Year
>> Federal: Consider This a Success!
>> Top Reads: Nonprofits and Foundations Poised to Score Victories in Tax Legislation
This week, congress passed a bill that had two big, bipartisan wins for foundations and nonprofits.
The private foundation excise tax was simplified to a flat rate so foundations can devote their time and resources to providing relief and other services throughout their communities. The new rate is a flat 1.39 percent. The previous system had a complicated, two-tier rate that penalized foundations for making outsized grants in one year by doubling their tax if they didn’t maintain those same levels. Unfortunately, this caused many foundations to pause before making large grants, for example, to disaster relief. ACR has been working to simplify the tax for more than a decade.
You may recall, at the urging of Rep. Danny Davis (D-IL), the Ways and Means Committee passed this as part of a disaster tax package earlier this year, and Rep. Davis joined with Rep. George Holding (R-NC) to introduce a standalone bill with the provision as well. Their support for this simplification coupled with a focused lobbying effort mounted by ACR and other philanthropy serving organizations built the momentum to win! Sadly, Mr. Holding will not run for reelection next year and we’re very sorry to see a champion for philanthopy go.
At the same time, a big group of charities and trade associations mounted a lobbying effort aimed at the new UBIT on parking and transportation benefits. The effort was successful, and this new tax was repealed in the same bill. As background, the provision, sometimes referred to as the parking tax, was imposed as part of the 2017 Tax Cuts and Jobs Act. It was causing many nonprofits to have to pay taxes for the first time (and for houses of worship, the first time they had to file anything with the IRS). The repeal, which has had bipartisan support in both the House and Senate since last year, is retroactive to January 1, 2018, so any nonprofits that paid the tax can file for a refund.
Our Take: Both of these provisions were common-sense changes that were made because stakeholders worked together to influence congress. When the sector unites around a common goal, we can really get things done.
ACR expects Treasury to provide much-needed relief, either by year-end or early next year, to foundations that find themselves liable for a tax on compensation earned by their officers and employees.
As you may recall, a provision in the 2017 tax bill imposed a new 21 percent tax on foundations and nonprofits that pay their officers and employees more than $1 million. This doesn’t hit a lot of nonprofits, however, included in that $1 million is compensation received from “related organizations”, and the IRS and Treasury have interpreted that broadly to include, for example, a family business that funds a family foundation.
ACR met with Treasury officials several times this year and summarized our concerns in a formal letter. Although Treasury can only address certain parts of the law, we are optimistic that future guidance will include exemptions for both volunteer officers of foundations and those who spend minimal time at or receive minimal compensation from the foundation. So, for example, if a general counsel at a privately held family business provides services free of charge to the family foundation, that person’s total compensation would not be subject to the excise tax.
Our Take: The new tax not only has a financial impact but could also have volunteer officers rethinking lending their expertise to nonprofits, which results in real implications for meaningfully engaging in civil society. We hope Treasury’s guidance will mitigate these impacts.
Follow us on Twitter @ACReform for more updates.
The California Assembly Judiciary Committee is expected to take up a bill in January that would give the state’s Attorney General broad authority to strip away donor privacy from donor-advised funds. The bill, A.B. 1712, was introduced by California State Assemblywoman Buffy Wicks earlier this year, and ACR and The Philanthropy Roundtable strongly oppose its attack on donor privacy.
ACR has worked closely with our colleagues at Philanthropy California to submit comments in opposition to the legislation. It was shortly after our opposition letters were submitted this year that the bill was pulled from consideration for the 2019 legislative session.
In response to the bill’s reconsideration, ACR will update our opposition letter and resubmit ahead of the committee hearing. If you or your organization want to submit comments before the deadline, January 3, please contact Sara Barba at ACR (email@example.com).
Our Take: Maintaining and defending donor privacy is at the core of what The Philanthropy Roundtable and ACR do. Opposing this bill could be a year-long fight, but we are prepared to help our colleagues in California in whatever way appropriate in order to defeat the violation of privacy this bill would allow if enacted.
Follow us on Twitter @ACReform for more updates.
Looking ahead to 2020, ACR will be working to grow and defend philanthropy in congress, the administration and the states. We’ll continue to work with the Charitable Giving Coalition to expand the charitable deduction for all taxpayers, and we’ll hold more hometown events with lawmakers to connect them to local nonprofit leaders. On the regulatory side, we expect Treasury and the IRS will continue to propose and finalize regulations related to the 2017 tax bill and other priorities, such as donor-advised funds, which we’ll monitor and respond to when appropriate. And at the state level, we’ll continue to engage in California and make the case for the importance of donor privacy as the assembly considers its DAF legislation.
Given the election year, ACR will also be tracking and responding to presidential economic proposals that could impact philanthropy, as well as ensuring our members and colleagues are equipped to defend philanthropy against attempts to weaken or eliminate it. We look forward to a productive and successful 2020!
The year-end tax bill that included the simplified PF excise tax and the transportation/parking UBIT repeal was a lesson for the nonprofit sector: when you work together toward a common goal, real success is possible.
ACR has been working on simplifying the private foundation excise tax for more than a decade. It has been a priority for our members and leadership, and we’ve gotten close to getting it done several times. So what made this time different and ultimately successful? A concerted effort from national and regional organizations to get it over the finish line.
The nonprofit sector is a diverse set of organizations with varying legislative priorities, and often those priorities appear to be in competition with one another. However, it’s often the case that we just don’t have the resources to do it all at once, so we have to focus on what can get done. If we can find common ground, not just with each other but with lawmakers as well, we can notch a win (or two) when the opportunity arises.
- National: Nonprofits and Foundations Poised to Score Victories in Tax Legislation
- National: Transportation Benefits Tax Axed from House Bill
- National: Nonprofit Leaders Express Worries Over Tax Law and Possible Recession
- National: Nonprofits Raise Nearly $2 Billion Online and Off on GivingTuesday
- National: Giving Tuesday can’t fix the damage Trump’s tax ‘reform’ did to charities
- National: GOP lawmaker to offer bill to create universal charitable deduction on ‘Giving Tuesday’
- Local: Charitable donation decline affecting local kids in need
- Press Release: Private Foundation Excise Tax Simplification, Parking/Transportation Parking UBIT Repeal Included in Year-End Tax Bill
- Blog: Giving Tuesday Highlights Year-Round American Generosity
Please feel free to email us at firstname.lastname@example.org if you have any questions, stories or topics you would like us to include in our newsletter.
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