The Tax Cuts and Jobs Act of 2017 includes two new taxes that are concerning to association professionals, and in both cases, the Treasury Department and the IRS have not released the guidance necessary for associations to calculate the tax, despite estimated tax payments due this Friday (June 15). These issues are:
• a new income tax on employee transportation fringe benefits, and
• separate computation of unrelated business income tax (UBIT), which would prevent tax-exempt groups from using the loss from one unrelated business activity to offset the income from another unrelated business activity
In addition, associations are expected to pay quarterly estimated taxes for the second time this year on June 15, with the first quarterly estimated tax payments of the year having been due on April 17, without the necessary guidance from Treasury and the IRS. More detailed information can be found below on these issues, but we need your help. Click here to go to the IRS public comment website and ask the IRS and Treasury to delay implementation of any UBIT changes until one year after the final regulations are released. (For Form/Instruction/Publication Number, fill in “Form 990-T”) We need your voice to share how this adversely impacts your organization and the need for a delay. Share your comments with us at email@example.com.
New Tax on Employee Fringe Benefits
Last month ASAE delivered a sign-on letter from close to 200 tax-exempt organizations concerned about the provision in the 2017 Tax Cuts and Jobs Act that taxes transportation and parking benefits provided by employers. The fringe benefits provision removes a deduction for employer-provided benefits such as transportation, parking and on-premises athletic facilities. In meetings with Treasury officials earlier this year, ASAE stressed that the new law disproportionately hurts tax-exempt employers by requiring them to pay a new unrelated business income tax (UBIT) on the value of these benefits.
The lack of guidance for tax-exempt entities in this area has also created a lot of confusion and conflicting opinions about how nonprofit organizations should go about calculating their tax liability to comply with the requirement. ASAE also pointed out that some cities, including Washington, DC, New York and San Francisco, have mandated that employers provide pre-tax mass transit benefits. Consequently, employers in those cities do not have the option of changing those benefits to avoid being taxed. ASAE has suggested that special consideration be given for employers in localities that mandate transportation benefits.
We are requesting a delay in implementation, the issuance of detailed guidance, a clear de minimis threshold, and an exemption for tax-exempts situated in localities that mandate such transportation benefits be provided.
Changes to Computation of UBIT
A provision in the Tax Cuts and Jobs Act, requires that unrelated business taxable income (UBTI) be separately computed for each business activity, ostensibly to prevent tax-exempt groups from using the loss from one unrelated business activity to offset the income from another unrelated business activity. As a result, many organizations may end up paying tax on unrelated business income for the first time. One major problem with the provision is that the new law doesn’t specify what makes up a separate unrelated trade or business. Associations need guidance from Treasury and the IRS in order to comply with this tax.
Other questions remain, such as how to calculate unrelated business come from investments and whether deductible expenses not tied to a specific unrelated business activity should be allocated. To read an article from ASAE and the CPA firm Tate & Tryon with more background on this issue click here.
If you have questions about this or any issue, please contact ASAE’s Public Policy team at 202.626.2703 or firstname.lastname@example.org.