Two Provisions of Interest to the Independent Sector Likely to Become Law

Tuesday, December 17, 2019

A deal in Congress on a tax extenders bill was made late Monday evening, and the deal includes two provisions that MCF and the broader independent sector have been supporting. The bill includes:

Private Foundation Excise Tax Simplification: The tax rate on the net investment income of tax-exempt private foundations would be reduced to 1.39%, from 2%. The measure would repeal a provision that allows the rate to be reduced to 1% if the foundation meets certain distribution requirements. The change would be effective for tax years after the bill’s enactment. This is helpful for the sector because it would be a flat rate, rather than a two-tiered tax, so it will be easier to administer. In the past, the two-tiered system actually disincentivized ‘extra’ giving in times of challenge, such as a natural disaster, because then private foundations would be paying at the 2% rate for several years after the big giving year. This change to a flat rate of 1.39% is revenue neutral.

UBIT Transportation Tax Repeal: The measure would repeal a provision of the 2017 tax law that classified transportation, parking, and athletic center benefits provided by tax-exempt organizations to their employees as fringe benefits. Those amounts are taxed as unrelated business income at a rate of 21% under the 2017 law. The measure would be retroactive to the 2017 law’s enactment. This new UBIT tax was costly and burdensome to administer, diverting money from mission [estimated to cost an average of 12K for fringe benefits by the Independent Sector].

MCF has been active in advocating for both of these provisions on behalf of its members. MCF is regularly in touch with Minnesota's Congressional delegation, including participating in Foundations on the Hill with other sector leaders every spring. In November, MCF signed onto a letter along with other sector leaders in support of a flat-rate, revenue neutral excise tax simplification. MCF also submitted written testimony to the House Ways and Means Committee about the UBIT taxes when the committee did a hearing on the unintended impacts of the 2017 tax law this spring.

In reaching out to members of Minnesota's delegation today, it seems highly likely that these provisions will become law. We're cautiously optimistic at MCF that these two important sector priorities will happen! We'll keep members updated once we know more.