Major tax legislation is about to be signed into law following the House and Senate votes to approve the conference bill on Friday, December 22, 2017. Because many provisions have been included in various versions of the House and Senate bills, we want to let you know what is and isn't in the final bill with regard to tax-exempt organizations.1 The attached chart describes key provisions specifically affecting tax-exempt organizations. Of particular note are the following:
- Tax on high compensation for nonprofit employees – The conference bill would impose a 21% excise tax on compensation over $1 million for nonprofit executives, and on substantial severance payments. Notably, the bill does not "grandfather" preexisting contractual compensation arrangements.
- UBIT – The Senate bill would prohibit combining various activities subject to Unrelated Business Income Tax (UBIT) for tax purposes, so organizations could no longer offset gains from one line of business with losses from another line of business. On the up side, the decrease in corporate income tax rates from 35% to 21% would also apply to UBIT.
- Higher education – A new tax would be levied on the large endowments of private colleges and universities, as detailed further in the attachment. Smaller endowments and endowments of public colleges and universities would not be taxed.
A number of high-profile provisions that were in either the House bill or the Senate Finance Committee bill have been dropped. The controversial partial repeal of the so-called Johnson Amendment prohibiting 501(c)(3) organizations from engaging in political activity was eliminated in conference committee. The termination of tax-exempt private activity bond financing, including "qualified 501(c)(3) bonds," was dropped by the conference committee. The taxation of royalty income for licensing of a nonprofit organization's name and logo, the changes to the "intermediate sanctions" safe harbor for nonprofits setting compensation for their executives, and the loss of tax exemption for professional sports leagues, which was drafted broadly enough to have swept in organizations engaged in sports in communities, were all eliminated earlier in the process.