Thursday, December 20, 2018
Just in time for Christmas, the Joint Committee on Taxation released its General Explanation of Public Law 115-97 (commonly known as the Tax Cuts and Jobs Act). Here are some gleanings from the provisions particularly applicable to tax-exempt organizations. Note that the Explanation, uncharacteristically, is missing "Reasons for Change" sections throughout; perhaps JCT found trying to read the collectively mind of Congress too difficult this time around.
- Clarification re Application of Section 170 Increased Percentage Limit for Cash Contributions: The Explanation clarifies that the new, higher limit is applied after (and reduced by) the amount of noncash contributions, and provides this example:
For example, assume an individual with a contribution base of $100,000 for taxable year 2018 makes two contributions to public charities: unappreciated property with a fair market value of $50,000 and $10,000 in cash. The individual makes no other charitable contributions in 2018 and has no charitable contribution carryforwards from a prior year. The cash contribution limit under new section 170(b)(1)(G) is determined after accounting for noncash contributions. Thus, the $50,000 contribution of unappreciated property is accounted for first, using up the individual’s entire 50- percent contribution limit under section 170(b)(1)(A) (50 percent of the individual’s $100,000 contribution base), and leaving $10,000 in allowable cash contributions under the 60-percent limit ($60,000 (60 percent of $100,000) reduced by the $50,000 in noncash contributions allowed under section 170(b)(1)(A)).
- "Technical Correction" May Be Needed to Reach State Colleges & Universities Under New Section 4960 Excise Tax on Excess Executive Compensation: The Explanation states "Applicable tax-exempt organizations are intended to include State colleges and universities." but then drops a footnote saying "A technical correction may be necessary to reflect this intent." For more on this topic, see this previous post citing an article by Ellen Aprill (Loyola L.A.).
- New Section 4968 Excise Tax on Investment Income of Private Colleges & Universities: Nothing surprising in the Explanation for this provision.
- Investments & New Section 512(a)(6) Siloing Provision: The Explanation provides that "it is intended that the Secretary consider whether it would be appropriate in certain cases to permit an organization that maintains an investment portfolio to treat multiple investment activities as one unrelated trade or business."
- Charitable Contributions & New Section 512(a)(6) Siloing Provision: A footnote addresses an issue I have not seen raised before: "An exempt organization that makes charitable contributions generally is permitted to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with an unrelated trade or business. It is not intended that an exempt organization that has more than one unrelated trade or business be required to allocate its deductible charitable contributions among its various unrelated trades or businesses." The limit on corporate charitable contribution deductions (usually 10% of a modified version of unrelated business taxable income) would apply, however.
- "Technical Correction" May Be Needed to Ensure New Section 512(a)(7) is Consistent with Section 274: The Explanation provides that "The determination of unrelated business taxable income associated with providing qualified transportation fringes, including parking facilities used in connection with qualified parking, is intended to be consistent with the determination of the deduction disallowance under section 274." but then drops the following footnote that states in part: "A technical correction may be needed to reflect this intent." I am not sure what the possible inconsistency is that is referred to here, although it may be buried in the recent IRS Notice relating to section 512(a)(7).