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Friday, December 20, 2019

Spending Package Repeals Parking Tax and Changes Private Foundation NII Tax Rate

Congress passed a comprehensive $1.4 trillion spending package this week and the President signed it late Friday night. Tax extender provisions were added as an amendment to the original bill. Included in the tax provisions were a few key changes that may impact nonprofit organizations:

  1. Section 206 - Modification of the excise tax rate on net investment from the two-tiered 1%/2% rate to a flat 1.39%
  2. Section 302 - Retroactive repeal of the increase in UBTI for certain fringe benefit expenses.

The change in the excise tax rate should simplify private foundation distribution modeling decisions. Previously, this was performed to determine whether the organization would meet the previously lower 1% excise tax rate. This possibility has been discussed and is generally seen as a positive simplification for most organizations. The expected results are a revenue neutral tax change.

The repeal of Internal Revenue Code section 512(a)(7) is a welcome relief for large and small nonprofit organizations that have grappled with the uncertainty and cost of that now repealed tax since its appearance in the 2017 Tax Cuts and Jobs Act (13703 of Public Law 115-97). This legislation was largely unpopular on both sides of the aisle, but previous attempts at proposed legislative repeal were unsuccessful based on the cost of repeal. Now, included in the larger spending bill, nonprofit organizations and practitioners will see the reversal of what has been one of the more maligned taxes impacting the industry.

Next Steps

Further guidance is expected, and we will provide an update as more information becomes available. Contact your local Armanino Nonprofit Tax expert with any questions or concerns relevant to your specific tax situation.

Kelly Gillette, CPA
Partner, Nonprofit Tax
Dallas, TX
Katy Brown
Partner, Nonprofit Tax
San Ramon, CA
Matt Petroski
Director, Nonprofit Tax
San Ramon, CA


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