With the signing of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the Act) on December 20, 2019, tax exempt organizations became the beneficiaries of several tax provisions that should provide some welcomed tax relief and a potential for increased donations.
Nonprofit Parking Tax Retroactively Repealed
Any tax exempt organization that paid tax on employee parking in tax filings made for 2017 and 2018 should be eligible to request a refund for the related tax paid.
Why? The Act removes the inclusion of certain fringe benefit expenses from unrelated business taxable income (UBTI) and amends IRC Section 512(a) by effectively striking out paragraph (7).
Originally included as part of the 2017 Tax Cuts and Jobs Act, the tax on qualified transportation fringe benefits had become a compliance headache for many nonprofits and required the filing of Form 990-T for 2017 and 2018 tax years for organizations that would otherwise not have been required to file.
Learn more about tax reform's impact.
With the “parking tax” now retroactively repealed, organizations that paid taxes on employee parking or other fringe benefits are now due refunds. Further guidance on how refunds will be claimed was issued on January 21 and requires organizations to file amended Form 990T in order to claim a refund or carryover tax payments made. While the IRS was encouraged to create a streamlined process to issue the refunds short of filing amended returns, that did not occur. Amended Form 990-T returns will be filed using the instructions provided by the IRS.
Flat Rate Private Foundation Excise Tax
The Act also replaced the two-tiered excise tax required under Section 4940 on the net investment income of Private Foundations with a single rate of 1.39% that is effective for tax years beginning after December 20, 2019.
This provision simplifies the reporting for Private Foundations with respect to both investments and grant-making decisions and eliminates the complexity associated with determining which tax rate (1% or 2%) any net investment income is subject to. The new flat rate is intended to promote the granting of funds when and where needed instead of potentially limiting the flow of funds due to the higher tax tier.
Temporary Disaster Relief Donation Provisions
Another benefit The Act creates is a temporary exception to the 60% and 10% limits on charitable tax deductions for disaster relief donations. The purpose of this temporary exception is to remove the limits on charitable donations required by individual (60% of AGI) and corporate (10% taxable income) taxpayers who generously seek to aid victims of natural disasters such as hurricanes, earthquakes and typhoons. The temporary provision applies to 2018 and 2019 disaster relief donations made to public charities as well as to donations made within 60 days after passage of the Act.
This temporary change will allow taxpaying donors to potentially increase deductions in prior years, setting up the possibility for refunds. In addition, the temporary change will also allow those charitable organizations that deal specifically in disaster relief activities the opportunity to inform potential donors of the ability to get a 100% deduction for donations made prior to February 18, 2020.
What the Act Means for your Tax Exempt Organization
The passing of the Taxpayer Certainty and Disaster Relief Act gives tax exempt organizations several new tax saving items to consider. It’s important to review if you may receive a refund or where you can find a potential increase for donations or tax relief.
Want to know how this new legislation can impact your organization?