The Tax Cuts and Jobs Act of 2017 (TCJA) includes provisions that directly impact nonprofits and other tax-exempt organizations. Sections 512(a)(6) and 512(a)(7) discuss "unrelated business income taxation" (UBIT) and fringe expenses. Although these provisions took effect on January 1, 2018, The Internal Revenue Service (IRS) and the Treasury have not offered guidance yet on how nonprofits should comply with this aspect of the new tax code, which has caused confusion and concern in the nonprofit community.
The law imposes a tax on nonprofits at the new 21% corporate income tax rate for each unrelated business activity. Income and losses from individual business activities must be reported separately. Previously, nonprofits could aggregate reporting of all such activities when calculating UBIT. Now, losses from one business activity may not be used to offset income from other business activities. It is essential that nonprofits track each unrelated business activity carefully and separately to the extent possible.
Section 512(a)(7) outlines that employers will also need to pay UBIT on fringe expenses. Fringe benefits that will no longer qualify for a tax break include but are not limited to transportation subsidies, meal reimbursements, childcare reimbursements, and mandated commuter benefits. While tax-exempt employers still can participate in fringe benefits for their employees, employers will now need to pay UBIT on those costs.
Along with the National Council of Nonprofits, we are asking that the IRS delay enforcement of these provisions of TCJA until one year after issuing clear guidance for nonprofits to follow.
You can adapt and use the following message for your comment:
For legal, policy, and practical reasons, and consistent with established precedent, Treasury and the IRS should immediately delay implementing those two new UBIT subsections until one year after Final Rules are promulgated, to provide both the necessary official guidance for compliance and a reasonable transition period for nonprofits to develop the necessary record-keeping systems.
Under Form/Instruction/Publication Number, type in Form 990-T
For more information on this issue, also check out the following resources: