There are four main parts of the “Tax Cuts and Jobs Act” that could – possibly – affect your school. Have you been keeping track of those provisions?
Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii). They are required to file Form 990 annually.
MBC’s accounting team emailed us prior to their board meeting to ask for an update on any provisions in the “Tax Cuts and Jobs Act” that they should be informing their leadership about.
We reply that there are four main provisions to be keeping an eye on. There are, of course, other rules (i.e. the taxability of moving expenses, the suspension of the bicycle-to-work benefit, the change in the corporate tax rate to 21%, etc.), but let’s focus on the “Big 4.” The Internal Revenue Code (I.R.C.) Sections to watch:
I.R.C. Section 4960, Excise tax equal to the rate of tax imposed on corporations (currently 21%) on the amount of remuneration in excess of $1 million and any excess parachute payment paid by an applicable tax-exempt organization (ATEO), or a related organization, to a covered employee.
I.R.C. Section 4968, Excise tax applying to any private college or university with at least 500 full-time tuition-paying students, more than half of whom are located in the United States, that has an endowment of at least $500,000 per student. An estimated 40 or fewer institutions are affected.
I.R.C. Section 512(a)(6), Special rule for organization with more than 1 unrelated trade or business – imposes “silo-ing” rules whereby losses from one unrelated activity may not offset profits from another unrelated trade or business and must be reported separately. (See the 2018 Form 990-T instructions and the new “Schedule M (Form 990-T))
I.R.C. Section 512(a)(7), Increase in unrelated business taxable income by disallowed fringes – addition to UBTI for costs paid or incurred for any qualified transportation fringe and/or any parking facility used in connection with qualified parking. (See the 2018 Form 990-T instructions, Part III, Line 34)
Finally, we should mention that Notice 2018-100 potentially provides limited penalty relief for some institutions who have not paid estimated taxes for the “Parking Tax” they may owe for years ending in 2018 and/or 2019.
The IRS requested comments on all of these issues in the various related notices
Notice 2019-9 – (amplifying I.R.C. Section 4960) announces intent to issue proposed regulations and clarifies effective date of code section, applicable tax years, who is liable for the tax, definition of “ATEO,” definition of “covered employee,” definition of “excess parachute payment,” types of payments covered, among other matters.
Notice 2018-55, (amplifying I.R.C. Section 4968) announces intent to issue proposed regulations and clarifies basis and capital gain parameters, a 1.4% excise tax on “net investment income” of qualifying colleges/universities, and proposes the rules and definitions for this “income” calculation might emulate Private Foundation tax rules – guidance is forthcoming.
Notice 2018-67, (amplifying I.R.C. Section 512(a)(6)) announces intent to issue proposed regulations, provides 14 detailed sections of information, and clarifies rules for using the NAICS 6-digit codes to make a reasonable, good-faith interpretation of various separate unrelated trades or businesses, activities in the nature of investments, safe harbor rules for certain partnership investments, net operating loss treatment, among other matters.
Notice 2018-99, (amplifying I.R.C. Section 512(a)(6)) announces intent to issue proposed regulations and clarifies the types of expenses that are included in “total parking expenses,” sets forth an opportunity to make a retroactive change to “parking arrangements” – to change parking space designations from “Employee Only” – up until March 31, 2019, enumerates a somewhat algebraic, four-step “safe harbor” reasonable method of calculation of the addition to an institution’s unrelated business taxable income in accordance with Section 512(a)(7), and includes 10 examples (two not-for-profit-specific).
- The “Tax Cuts and Jobs Act” hit on 12/22/17 and the tremors continue to reverberate through the exempt organization community.
- You should carefully analyze whether your institution might be subject to these “new” taxes currently or in the future.
- As with all tax matters, it is importation to DOCUMENT your positions (conferring with knowledgeable advisors) on all positions taken.
- We remain hopeful that these laws – especially the “disallowed fringes tax” under I.R.C. Section 512(a)(7) – might be amended, altered, and/or repealed in a manner that is advantageous to the exempt organization community.
Specific questions? Email Dave Moja
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.
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