Early in the morning on December 2, 2017, the Senate passed its version of the Tax Cuts and Jobs Act (the Act), including a manager’s amendment that was made late on December 1, just over two weeks after the House of Representatives passed its own version of the Act. Quarles & Brady analyzed the original House version in two previous Updates (Click here for a general summary of the Bill and here for the Bill’s impact on tax-exempt organizations) and also compared the tax-exempt provisions of the House and Senate versions as they existed on November 16, 2017 (Click here to view). Most provisions of the Act would be effective for tax years beginning after December 31, 2017.
The table below compares specific provisions in the House Bill (as adopted) and Senate Bill (as adopted), focusing on how each version will affect tax-exempt organizations. The Senate’s December 2 version of the Bill omitted several significant provisions that were included in its November 14 version. Omitted provisions are lined through in the table below.
*Click here for more information about the House Bill’s repeal of the above bonds.
Quarles & Brady Comments: As the table shows, a number of the more punitive provisions of the Senate Bill as passed out of committee were removed from the Senate-passed Bill. Inexplicably, the simplification of the excise tax rate paid by private foundations on their net investment income was not carried over from the House Bill, even though it was designed to be revenue-neutral and has had bipartisan support for years. Some of the remaining provisions will need significant interpretation if they survive the reconciliation process. For one, what will be considered separate trades or businesses for determining unrelated business taxable income (e.g., each investment - which would be a nightmare - or an organization’s investments collectively)? For another, the tax on certain compensation in excess of $1 million raises as many questions as it answers. The tax on investment earnings of colleges and universities with large endowments begs for a policy rationale, as there is no direction of the tax generated toward benefiting students or even toward education.
Even more so than by these specific provisions, many 501(c)(3) organizations are greatly troubled by other portions of the Act that will affect contributions to them. Notably the lowering of income tax rates and the increase in the estate and gift tax exemption amount or complete elimination of the estate tax will greatly decrease tax incentives for charitable giving by the wealthy. The doubling of the standard deduction will eliminate tax incentives for charitable giving for the vast majority of Americans, generally affecting low- and middle-income taxpayers. The Joint Committee on Taxation has estimated that, due to the proposed increase in the standard deduction, 31 million Americans will not be entitled to a deduction for their donations to charities, and giving to charities is expected to decrease by at least $13.1 billion a year.
The House and Senate now must reconcile the two versions of the Act to create a single piece of legislation, which then must be passed by both houses. Accordingly, the Act will continue to be revised during the reconciliation process.