HARMON CURRAN NONPROFIT LAW BLOG

2017’s Taxpayer First Act created new burdens for nonprofit organizations that provide qualified transportation benefits to their employees. These new burdens have mercifully been eliminated as part of the federal government spending legislation that was enacted in December. This legislation also simplified the annual excise tax for private foundations.

As part of the sweeping tax bill passed at the end of 2017, Congress made taxable certain qualified transportation benefits offered to employees, including payments by the organization for employer-provided parking, transit passes, commuting reimbursements, and also compensation that employees were allowed to put into pre-tax transit accounts. The application of the law to nonprofit organizations providing such benefits was particularly confusing, as such benefits were taxed as Unrelated Business Income Tax (UBIT) (a 21% tax that typically only applies to certain non-tax-exempt commercial activities carried on by nonprofit organizations).

The government funding legislation for fiscal year 2020 that was signed into law on Friday, December 20, 2019 repealed the tax with retroactive effect back to the date of its enactment. Any nonprofit organizations that paid UBIT for such benefits on their 2018 returns may now file an amended Form 990-T to recover those tax payments.

In addition to repealing the tax on qualified transportation benefits, the recent legislation also simplified taxes on the net investment income of private foundations.  The previous law imposed a 2% tax on such income but reduced the tax to 1% for foundations that spent more than the required amount for the foundation’s charitable purposes.  The new law replaces this two-tiered tax with a flat 1.39% tax.