From Proposal to Policy | What the Big Beautiful Bill Now Means for Nonprofits

Ravika Shankar:Thank you Eric. I am Ravika Shankar, a senior manager in the New York not-for-profit services group at EisnerAmper. I have over 15 years of audit and accounting experience with employee benefit plans and nonprofit entities, which include private foundations, religious organizations, and other exempt organizations. My experience also extends beyond audits. I also prepare and review federal compliance and tax forms, including forms 9 99, 90 T, and nine 90 pf. With that, I'll jump right into our agenda. So as we all know, this act has been a topic of significant discussion and today we'll update you on its specific impact on the nonprofit sector. During today's presentation, we will provide a brief overview of the act, which is a comprehensive piece of legislation that aim to reform various aspects of the tax code. This bill directly impacts the financial operations and compliance requirements of nonprofit organizations. These changes can affect how nonprofits manage their funds, report their activities, and ultimately how they fulfill their missions.

We'll briefly discuss why the bill matters to the NFPS missions. We will explore some key provisions of the bill affecting nonprofits. We'll look at the excise tax on university endowments. Universities with large endowments will face higher excise taxes, which may impact their financial planning and scholarship funding. This change aims to ensure that wealthier institutions contribute more to federal revenue. We'll look at the excise compensation tax expansion. The bill broadens the definition of a covered employee, which could significantly increase the number of individuals subject to the excise tax. We also look at some changes impacting charitable deductions for corporation and individuals. The bill introduces a threshold for corporate charitable contributions. Then we'll look at two other areas that would impact nfps, the extension of the lookback period for the employee retention credit, the ERC claims, and then we'll look at remittance exercise tax on foreign activities.

We also want to look at some provisions that did not make it into the final act. We'll look at the excise tax and private foundation investment income. This was part of the house version of the bill, but it's no longer included in the final act. And this proposal, it was meant to increase excise taxes using a tiered rate structure for private foundations. Then there was the unrelated business income and expanded scope of taxable activities, which was also part of the house version but did not make it into the final act. This proposed taxing fringe benefits as well as limiting the exclusion of research income to publicly available research. Then we'll summarize our presentation by highlighting a few key takeaways. Understanding these provisions is essential for nonprofits to navigate the new regulatory landscape effectively. Then lastly, we'll suggest some useful tips in how to prepare for these changes. Early preparation and strategic planning will be crucial for nonprofits to adopt to the new requirements. And with that, I'll hand it back to Eric.

Eric Beining:Thank you, Ravika. We wanted to provide you with an overview of the timeline of the legislative process. So in on May 20th, 2025, the bill was originally introduced in the house. It was sponsored by representative Jody Arrington, a Republican from Texas, and referred to the House Budget Committee on May the 22nd. It passed the house narrowly by a vote of two 15 to two 14 with one member voting present on July 1st. It passed the Senate with amendment and passed narrowly by a 51 to 50 vote with vice President JD Vance casting the tie breaking vote. On July the third, 2025, the house agreed to senate amendment, meaning the house accepted. The sentence changes by a vote of two 18 to two 14. Furthermore, on July the third, it was presented to the president and sent to the White House for signature. And then finally on July 4th, 2025, it was signed into law and became public law number one 19 dash 21. And actually I think that answers our first q and a from Kenneth Hoffman who had asked what is the real name of the bill. So it became public law number one 19 dash 20.

So now we'll turn to the impact of the bill for nonprofits. So some focus areas, the act includes several provisions that could significantly impact nonprofit organizations To stay ahead of these changes, nonprofits should take proactive steps by reviewing the new rules and interpreting how these rules specifically apply to them. Areas we will discuss today include how this legislation makes significant changes to how universities are taxed and regulated. From steep new excise tax tiers on endowments to expanded penalties on executive compensation, these provisions could reshape your financial strategies, donor relationships, and long-term strategic planning. Understanding and preparing for these changes now is essential not just for compliance but to protect your mission and the communities that you serve. Excise tax on university endowments, excise compensation, tax expansion and changes impacting deductions for charitable giving, all important items that we'll be discussing today.

Astrid Garcia:Poll #2

Eric Beining:Thank you. So our first topic that we'll get into today is excise tax on university endowments. So the one big beautiful Bill Act, also known as public law one 19 dash 21 includes a significant update to the excise tax on university endowments. The update is aimed at increasing tax obligations and it's effective for tax years starting on or after January 1st, 2026. So if we look a little bit of the history of the excise tax on university endowments travel back in time to the Tax Cuts and Jobs Act of 2017. The issue at hand was the IRS was concerned was supposedly large sums of accumulated endowments that were growing and building up at universities and private colleges. The action step that the IRS decided to take was to create a new excise tax on endowments. The result was that this excise tax, which applies to the net investment income of university endowments, was introduced in the Tax Cuts and Jobs Act of 2017, and it was at a flat rate of 1.4% and applied to private colleges and universities with at least 500 tuition paying students and endowment assets of $500,000 or more per student.

Under the change, under the one big Beautiful Bill Act, the issue remains the same. Supposedly large sums of accumulated endowments are building at private universities and colleges. The good news is public universities remain exempt from this excise tax. So the action that was taken, the flat 1.4% excise tax rate on net investment income has been replaced with a graduated rate system based on the school student adjusted endowment. For example, the endowment assets per tuition paying student. So below you'll see a chart of what was originally proposed and that we talked about back in June versus what was finally signed into law on July the fourth. You'll notice that the introduction rate of 1.4% remains the same. However, for the rates between 750,000 and 2 million, the excise tax rate in the final bill was significantly reduced and was reduced from seven to 14% down to a 4% rate. And then finally, for amounts above 2 million, the rate was significantly cut from the proposed rate of 21% down to 8%.

So this graph is just a representation showing the original tax rate structure under the tax cut and Jobs Act, which had a flat rate of 1.4% versus an analysis of how in the final bill, the new tiered tax structure aligns with the prior loan. In addition, there is an exemption, so the number of tuition paying students required for a school to be subject to this excise tax has changed the number of tuition paying students under the old rules for the tax cut and Jobs Act was at 500. Initially in the proposed bill, that amount stayed the same. However, the final bill, the amount was increased to 3000. So clearly this result, this change exempts smaller private institutions even if they have large endowments. Just as a statistical insight, I thought it was interesting to find that it's estimated that in 2023, this excise tax on endowments generated approximately $380 million.

In addition, there are changes under the one big Beautiful Bill Act for definitions. So there are expanded definitions related to investment assets and net investment income for investment assets. It now includes assets held by related organizations such as supporting foundations, controlled entities, and also you'll find broader asset categories in regards to net investment income. It includes student loan interest. Net investment income shall be determined by taking into account any interest income from a student loan made by the applicable educational institution or related organization as gross investment income. Federally subsidized royalty income from intellectual property developed with federal funds as well as potentially other income.

So under this change by the one big Beautiful Bill Act possible results, critics claim that the increased tiered rate excise tax could create a financial strain on universities, impact on students by potential fewer scholars and tuition increases to cover the increased excise tax reduction in research and innovation institutional inequity because of potential disproportionate impact on smaller colleges and possible reduction in donor contributions due to fear, their gifts will be taxed. And also policy concerns where we see university policies drift towards a focus on revenue generating programs to maintain financial stability. Now, before we go to our next slide, I also wanted to go over some practical steps that university board members can take to better understand and respond to the acts impact on university endowments education and educating themselves on the legislation. They could request briefings from legal counsel or government affairs staff, attend webinars or workshops hosted by higher education associations, review official summaries and tiered tax impact charts related to the new act.

In addition, they would want to analyze the university's endowment position, and they can do that by asking for a detailed report on current endowments per students looking into projected tax liability under each of the tax new tax tiers, looking at historical and projected investment returns. They could also do this by requesting scenario modeling to understand how different tax tiers affect long-term financial planning and they get, in addition, they can engage in strategic dialogue. This would include the acts impact as a standing agenda item in finance and investment committee meetings where they could discuss whether to adjust spending policies, how to communicate with donors about the tax effect of their gifts, and whether to restructure endowment assets or create new giving vehicles.

They can advocate and collaborate, join or support coalitions of universities advocating for changes or exemptions. Encourage the university's government relations team to engage with lawmakers and consider submitting public policy comments or testimony in the future. While it may be too late for this act, there will likely be others in the future. And finally, staying informed. Subscribe to updates from the National Association of College and University Business Officers Counsel and Foundations, and of course IRS and Department of Education for Implementation Guidance. With that, we will go to our next slide, which I believe may be a polling question.

Astrid Garcia:Poll #3

Ravika Shankar:Okay, seems like 71% of you got it correct and the answer was true. Next section, we have the excise compensation tax. Now this is an important amendment to the definition of covered employees under Section 49 60 C two of the IRC. This amendment has significant implications for tax exempt organizations potentially increasing their excise tax liabilities due to the expanded coverage IRC section 49 60 applies to highly compensated individuals within tax exempt organizations. Organizations affected by IRC Section 49 60 include those exempt from federal income tax under section 5 0 1 a such as charities, private foundations, and social welfare organizations. Previously, section 49 60 imposes a 21% excise tax on applicable tax exempt organization. This tax is applicable to organizations that pay 1 million or more in remuneration to any of their five highest paid covered employees. A covered employee is defined as one of the five highest compensated employees of the organization for the taxable year. This definition also includes any excise parachute payment made to covered employee under section IRC 49 60. A parachute payment is defined as any payment in the nature of compensation two or for the benefit of a covered employee if the payment is contingent on the employee's separation from employment. Would the employer, it has an aggregate present value more than or equal to three times the base amount. Parachute payments include various forms of compensation such as severance pay and bonuses. These provisions have been effective for taxable years beginning after December 31st, 2017.

Form 47 20 is essential for accurately reporting and computing the excise tax liabilities imposed under various sections of the IRC. It is used to compute and report the excise tax imposed on tax exempt organizations, and the form must include detailed information about the remuneration paid and the calculation of the excise tax. This form is crucial for ensuring compliance with various excise tax provisions on the IRC and then forms nine 90 and nine 90. PF include trigger questions that relate to the information required in Form 47 20. These questions help identify whether an organization needs to file for 47 20 based on its compensation practices, on other activities or related organizations included. This is especially relevant for complex nonprofits where executives receive compensation from multiple entities. Remuneration from related organizations is included if the organization controls or is controlled by the tax exempt organization. This means that there is a significant influence or control relationship between the organizations. Then if there is, the remuneration must be reported. If individuals who control the tax exempt organization also control the related organization, the remuneration is included. And then if the organization is a supported organization or support team organization of the tax exempt organization during the taxable year, the remuneration is included. And then lastly, in the case of a 5 0 1 C nine Veeva, if the related organization establishes, maintains, or makes contributions to the tax exempt organization, the remuneration is included.

So let's look at the pro rata share of excise tax. Each employer of a covered employee is liable for the pro rata share of the excise tax. The excise tax is calculated based on employer share of the total remuneration paid to the covered employee, and this ensures that the tax burden is distributed fairly among all entities involved in compensated the covered employee. Let's consider an example. Suppose a tax exempt organization pays an employee 800,000 and then a related employer pays the same employee 300,000. The total remuneration for that employee is now 1.1 million. Under section 49 60, the excise tax rate is 21% on the excise remuneration over 1 million. So in this case, the excise amount is a hundred thousand, and that results in excise tax of 21,000. This will then need to be prorated. The tax exempt organization share of the tax would be based on its portion of the total remuneration.

Since the tax exempt organization paid 800,000 out of the 1.1 million, it is responsible for approximately 73% of the tax, which amounts to around 15,000. And then the related employer would have to pay the tax based on the 300,000 of the 1.1 million, which just comes out to be around $6,000 in taxes. So each related employer is required to file a Form 47 20 to report its proportionate share of the excise tax. And then again, this form is essential for ensuring that all entities involved in paying remuneration to the covered employees are accountable for their share of the tax. Now, accurate reporting and payment of the excise tax are crucial for compliance with the IRS. So the tax exempt organizations and their related entities must coordinate to ensure that accurate reporting and payments of the excise tax is done. And this involves thorough communication and collaboration to understand each entity's responsibility and to ensure that all information is included in Form 47 20.

Under the previous law, a covered employee is defined as an employee, including former employees of an applicable tax exempt organization who is one of the five highest compensated employees of the organization for the tax year. Additionally, an individual who is a covered employee of the organization or any predecessor for any proceeding tax year beginning after December 31st, 2016. This means that once an individual is identified as a covered employee, they retain this status. This also means that once an individual is identified as a covered employee, they remain a covered employee for all subsequent years, even if their compensation falls below the top five. In later years, organizations should track all forms of remuneration, including wages, bonuses, and certain fringe benefits to ensure accurate identification of covered employees. Now, deferred compensation is counted when it's fast, not when it's paid, which means a large deferred compensation payout in a given year could elevate an executive into the top five earners. Again here, the timing of the compensation, the compensation recognition would play a key role. Accurate tracking of all of this information is essential for compliance with Section 49 60 and in failing to comply with IRC Section 49 60 can result in financial penalties and increase IRS scrutiny. And then again, noncompliance can also trigger audits.

So under the final act, the definition of covered employees is expanded to include any covered employee receiving over 1 million in compensation. This includes deferred compensation and severance arrangement. It no longer will be just the top five. As with the previous law, it'll be all covered employees and this would significantly expand the scope of who is considered a covered employee. This change means that more employees will fall under the definition of covered employees, increasing the number of individuals subject to the excise tax on excise compensation. This can have a significant impact on financial planning and compensation strategies as organizations will need to account for a broader range of employees in your tax calculations. Deferred compensation and severance arrangements are now explicitly included in the calculation of total compensation. With the expanding definition, tax exempt organization may face increased reporting requirements and need to file additional documentation to comply with excise tax provisions.

Now this includes accurately tracking all forms of remuneration and ensuring that compensation packages are designed to minimize tax exposure. Now, regular reviews of compensation practice will be essential to maintain compliance and avoid any penalties. This change would apply to taxable years beginning after December 31st, 2025, which means that organizations will need to prepare for these changes in advance to ensure compliance. Starting from the 2026 tax year tax exempt organizations should begin reviewing their compensation structures and reporting practices now to accommodate for the new regulations. Early preparation will help to mitigate any potential disruptions and ensure a smooth transition to new requirements. And then organizations should also start assessing the impact of executive compensation and potential excise tax liabilities. Organizations should also work with financial advisors to design compensation packages that minimize excise tax exposure while remaining competitive implementation of a robust reporting system to track all forms of remuneration and ensure accurate documentation for excise tax calculations would also be essential. Again, organizations should always keep abreast of legislative developments and IRS guidance to ensure proactive financial management and compliance. And with that, I will turn it back over to Eric.

Eric Beining:Thank you, Ravika. We'll now turn our attention to changes affecting deductibility of charitable giving. So the corporate charitable giving floor. In comparison, the current law corporations may deduct charitable contributions up to 10% of taxable income, but there is currently no minimum requirement under the new law. It introduces a 1% minimum floor for corporate charitable deductions. This applies to tax years beginning after December 31st, 2025. Potential result of this clearly would be that it creates the possibility that the incentive for corporate giving is reduced unless it exceeds the 1% minimum floor requirement. So before we go to a couple examples, let's talk a little about what talking points nonprofits may be able to use when engaging stakeholders, policy makers or the public. So once again, what does the provision do? So the ACT introduces once again a 1% floor on corporate charitable deductions. This means corporations must donate at least 1% of their taxable income to qualify for any charitable tax deduction.

The existing 10% ceiling on corporate charitable abductions remains unchanged. So obviously the potential concerns would be it disincentivizes smaller donations. So corporations that typically give less than 1% of their income under the new rules would receive no tax benefit, potentially reducing overall charitable giving. This has the option or the potential to hurt smaller nonprofits. So organizations that rely on modest corporate gifts may see a decline in support and it creates artificial barriers. Floors and ceilings can distort natural giving patterns and reduce flexibility in corporate philanthropy. So arguments for reconsideration, charitable giving should be encouraged at all levels and not penalized below an arbitrary threshold. Smaller and mid-sized businesses may be disproportionately affected as they often give based on community needs rather than a specific tax strategy. And it could undermine corporate social responsibility efforts that are not tied to large scale giving. So what can nonprofits do?

Obviously educate their corporate partners about changes in implications. Advocate for repeal or modification of the floor through coalitions and public comments. Diversify funding sources to reduce reliance on corporate gifts and talk to donors about staggered bundling or bunching of gifts. So now we'll turn our attention back to the example. So our first example here, corporation has the following fact pattern, taxable income of a hundred million dollars, charitable donation of 800,000. So before of the new rules, the corporation can deduct the full $800,000 as a charitable deduction. However, after the new rules, the deduction is disallowed because it falls below the 1% floor. So in this example, an $800,000 charitable donation is less than 1% when taken into consideration the total taxable income of the corporation.

In regards to a second example, let's kind of assume the same fact pattern. A corporation has a hundred million dollars in taxable income. And this is where I've seen a lot of questions come in from clients in regards to how does it work when you actually exceed that floor. So the first $1 million in charitable contributions, as I stated earlier, is not deductible. If the company donates $2 million during the year, only the $1 million above the 1% floor is considered tax deductible. The initial 1 million below the floor is not lost, but it cannot be deducted in the current year. Instead, it may be carried forward for up to five years.

Turning our attention now to the impact on deductibility for individuals. There are also new rules that come into play not only for corporations but also for individuals. So the new 0.5% adjusted gross income or HGI floor. So starting in 2026, individuals who itemize deductions by Schedule A when they're 10 40 will only be able to deduct charitable contributions that exceed this 0.5% of their A GI cap on tax benefits. So for individuals in the highest tax bracket of 37%, the value of itemized charitable deductions is capped at 35%. So this effectively reduces the tax savings from charitable contributions for high income earners. 60% of a GI contribution becomes permanent. So the existing 60% of a GI limit for cash contributions to qualified public charities is made permanent. This helps incentivize cash donations versus non-cash donations. So how these changes actually impact charitable giving from both a corporate and an individual standpoint in 25 before the rules change will be interesting to see. There have been a lot of talks about charitable giving tax strategies, bundling and bunching among the new rules come into play. So clearly a lot of different types of conversations are taking place on how these new rules will impact charitable contributions in general.

With that, we'll turn our attention to a couple other areas that popped up inside the new bill and other areas of importance that should be aware of. The first one is an extension of the lookback period for the employee retention credit or commonly known as ERC claims. So some of you a nonprofit organizations Under the old rules, the statute of limitations for potential IRS audit was five years for the employee retention claims for wages paid in Q3 and Q4 of 2021. Under the new rules, the statute of limitations has been increased five years to six years from the latest of three events for ERC claims, for wages paid once again in Porters three and four of 2021. This extension starts from the later of the original form 9 41 filing or a corrected form 9 41 x filing date or the ERC claim date. It's also important to note that late filed ERC claims for the third and fourth quarters of 2021 are disallowed if submitted after January 31st, 2024. However, this disallowance only applies to claims processed after the enactment of the bill claims that were filed late, but were paid before July 4th when the president signed this into law should not be affected.

And with that I will turn it over to Ravika.

Ravika Shankar:Thank you, Eric. We also wanted to briefly discuss the remittance excise tax in foreign activities. So starting January 1st, 2026, a new federal excise tax will apply to certain outbound remittance transfers from the United States. The 1% tax is part of section 76 0 4 of the act, and it is designed to target cash-based transfers that are harder for regulators to trace. The tax applies specifically to remittances funded with cash, money orders, cashier checks, or similar physical instruments. These are commonly used by individual sending money to family abroad, small businesses paying overseas vendors and immigrants using services like Western Union or MoneyGram. Importantly, the sender is responsible for paying the tax, but the remittance provider, such as a check cashing store or money transmitter is required to collect and remit the tax to the IRS. If they fail to do so, they become secondary liable. There are key exemptions to be aware of.

Transfers are not taxed if they are withdrawn from a US bank account subject to the Bank Secrecy Act. If they're funded with a usis issued debit or credit card, or if they're sent via digital platforms like Zelle, PayPal, Venmo provided the source is linked to a qualifying account. Now this would have some impact on NFPS with global financial ties. Example, foundations that make grants to foreign charities. The excise tax is based on the method of payment, and if payments are made via a CH or checks, the NFP would not be subject to the tax. So let's say a US based nonprofit sends a hundred thousand dollars grant to a partner charity in Kenya. If the nonprofit uses a cashier's check to make the payment, the transaction would be subject to 1% excise tax resulting in an additional $1,000 tax liability. Now, the tax is not waived simply because the sender is a nonprofit.

However, if the nonprofit instead uses a wire transfer funded from its US bank account or a USIS issued debit card, the transaction would then be exempt from the tax. So this highlights the importance of structuring payments efficiently to avoid unnecessary costs. This is one area to keep in mind. If an NFP has any foreign payments for those nfps, this is a good time to reassess payment workflows and explore digital or bank based alternatives to avoid unnecessary tax exposure. And then the next section, we wanted to highlight a few of the areas that were originally in the house version of the bill but didn't make it into the final act. So the first one is the excise tax on private foundation. The investment income. So the house version of the bill proposed a substantial increase in the excise tax rates on the net investment income of private foundations.

On the current law, private foundations are subject to a flat tax rate of 1.39% on their net investment income. And this rate applies uniformly regardless of the amount of the net investment income reported. However, the house version of the bill proposed a tiered rate structure with rates ranging from 1.39% as high as 10% depending on the value of the foundation's assets. And then this would have represented a significant shift from the current flat rate. So foundations with assets that had less than 50 million would've maintained the current tax rate of 1.39%. Those with assets between 50,000,200 50 million would've been subject to 2.78 rate. And then those with 250 million to 5 billion would've faced a 5% rate. And then the lastly, foundations with assets, the 5 billion or more would have been taxed at the highest rate of 10% since the proposed rate increases did not make it into the final act.

I wanted to review the current tax code and highlight some reminders and definitions that relate to the excise tax and private foundations. As mentioned, the current law imposes a flat tax rate of 1.39% on the net investment income of most domestic tax exempt private foundations. Now, this excise tax is designed to ensure that private foundations contribute to the federal revenue as they operate for charitable purposes. An exempt operating foundation is not subject to this tax. These foundations are typically engaged directly in charitable activities rather than merely providing grants to other organizations to qualify as an exempt operating foundation, the foundation must be publicly supported for at least 10 years, have a governing body with less than 25% disqualified individuals and ensure no officer is a disqualified individual during the year. Non-exempt private operating foundations are also subject to this tax, but the calculation method differs for these foundations.

The tax liability is determined by comparing the sum of the excise tax on net investment income and the tax on unrelated business income to the foundation's income tax liability for the year. This ensures that the tax burden is proportionate to the foundation's financial activities and then the tax must then be reported on form nine 90 pf, which is used by private foundations to report their financial activities and ensure compliance with federal tax regulation. It also provides detailed information on the foundation's revenues, expenses, grants and investments, allowing the IRS to monitor the foundation's operations and verify his adherence to tax exempt status roles. Then the next section was the unrelated business income and expanded scope. So the house version of the bill proposed amending section five 12 A to increase unrelated business taxable income UBTI for tax exempt organization. This is no longer in the final act, just a reminders on UBTI per section five 12 A one unrelated business.

Taxable income means the gross income derived by any organization from any unrelated trader business regularly carried on by it. This income is calculated, less deductions allowed, which are directly connected with carrying on of such trade or business. Some examples of UBTI can include income from activities such as advertising like revenue from ads placed in publications or websites. It's important to note that even if the income supports the organization's mission, it may still be considered unrelated business income if the activity itself is not substantially related to the exempt purpose. An exempt organization that has a thousand or more gross income from unrelated business must file form nine 90 T. For most nonprofits. Unrelated business income is taxed at the 21% flat federal corporate income tax rate, and this rate applies uniformly regardless of the amount of UBTI reported. Now the house version of the bill proposed including certain fringe benefit expenses for which deductions are disallowed in UBTI.

These expenses are non-deductible under IRC section 2274, meaning they cannot be subtracted from the organization's taxable income. The inclusion of these fringe benefits would've broadened the scope of what is considered taxable income, which meant that tax exempt organizations would've seen an increase in their overall tax viability. Had it made it into the final act, we would, it would've taken us back to the parking tax, which was introduced in the tax cuts and job acts of 2017. And that required organizations to count the cost of parking and transportation benefits for employees as taxable income. And then the next area related to section 5 5 12 B nine for specifically limiting the exclusion of research income to publicly available research. Now this change aimed to ensure that only research that is accessible to the public qualifies for tax benefits. The intention behind this amendment was to promote transparency and public access to research findings.

Only research that was made publicly available would have benefited from the exclusion potentially influencing how institutions planned and disseminated their research projects. Now, institutions would have needed to adjust their strategies to ensure their research met the criteria for public accessibility. This would involve publishing research findings and open access journals or making them freely available on institutional website. Now again, this amendment did not make it into the final act, and since the change didn't make it into the final act, I also wanted to include some reminders about the current provisions of Section five 12 B nine, which addresses the tax treatment of income from research activities conducted by certain tax exempt organizations. It applies to organizations operated primarily for the purpose of carrying on fundamental research. The section currently specifically excludes income from research performed by colleges, universities, or hospitals for any person from being considered unrelated business taxable income.

This exclusion ensures that research activities conducted by these institutions are not subject to UBTI, recognizing their role in advancing public knowledge and education. Currently, organizations operate primarily for fundamental research can benefit from this exclusion, allowing them to allocate more resources towards their research activities without the burden of additional taxes. Now this provision supports submission of educational and scientific institutions by providing favorable tax treatment for their research income. For example, a university conducting research funded by government grants or private donations can exclude this income from the UVTI, therefore maximizing the funds available for research projects. So from here we go into our last polling question.

Astrid Garcia:Poll #4

Ravika Shankar:We just wanted to get some feedback from the audience and it seems like the area that most organizations, it's the change to the corporate travel deduction roles, and we've got a lot of questions on that, so that makes sense. Over to you, Eric.

Eric Beining:Thank you Ravika. Alright, some key takeaways from today's presentation. So number one, excise tax on university endowments will move from a flat tax rate of 1.4% to a tiered tax system based on student adjustment endowment, which reaches a maximum of 8%. Some action steps would be reviewing endowment and investment structures, conduct a comprehensive audit of your endowment and related entities, model the potential tax impact under the new tiers and consider restructuring or reallocating investments to reduce exposure for purposes of the tax on compensation in excess of $1 million. The definition of covered employee under section 49 60 of the Internal Revenue Code is amended to include all covered employees, current and former instead of just the top five highest compensated.

Who are some organizations that may be impacted? So those entities that may be impacted the most could be universities when looking at president's compensation, large health systems, when looking at the chief medical officer, C-E-O-C-F-O, or even public utilities like exempt cooperatives exempt under 5 0 1 c 12, and their CTOs action steps would be to identify all employees who may be affected, review contracts, and consider compensation restructuring, consult legal counsel on compliance and reporting obligations. So number three, the incentive for corporate giving is reduced unless it exceeds the 1% minimum floor requirement. So we need to monitor corporate giving trends. Some action steps may include strengthening relationships with corporate donors, diversify funding sources to reduce reliance on corporate gifts, communicate the impact of donations more effectively to encourage giving above the floor and of course, discussing or creating possible staggered bundling or bunching strategies.

Individuals who itemize deductions will only be able to deduct charitable contributions that exceed one half of 1% of their A GI. And as we previously discussed, for those individuals in the highest tax bracket of 37%, the value of itemized charitable deductions is capped at that 35% level. In regards to this, some suggestions would be to educate your board and donors because these changes could affect donor behavior. Governance decisions and strategic planning. Action steps may include hosting briefings or webinars for board members and major donors share tailored impact assessments and update fundraising messaging to reflect the new landscape. And obviously most of these changes will take effect after December 31st, 2025, so for the 2026 tax year. With that, I will turn it back over to Ravika.

Ravika Shankar:What can you do now to prepare? Firstly, don't panic, we are all in this together. You want to do further research and stay informed. Eric showed us where to go to get informed on the bill at the beginning of his presentation. There you can download a PDF of the bill to do further research. And then nonprofits should review compensation and governance practices, especially if they have high executive pay or complex organizational structures. Accurate tracking is essential for compliance with the IRC section 49 60 organizations should also maintain a list of separated employees and severance payments. This is important because severance payments can be considered remuneration and may affect the identification of covered employees. Then universities should reassess investment strategies and student aid policies if they have large endowments. Then largely for organizations that receive substantial pledges from high network individuals or corporate donors, it's essential to maintain strong communication with those donors, especially when broader financial or regulatory changes are underway.

Even if the changes don't directly affect the donation process, they can create uncertainty or prompt donors to revisit their given strategies. That's why it's important to proactively engage with them, reaffirm their commitment, and then ensure that any outstanding pledges remain collectible and on track. This kind of outreach helps preserve donor confidence, strengthens relationships and reinforces your organization's readiness to navigate change with transparency and care. And then with that, we just wanted to look at a few questions. I do want to address one from hope from a practical perspective. Does this mean any doctor employed by a nonprofit hospital, even if they're not one of the top five compensated employees, are considered a covered employee and would be subject to this excise tax? So that is a great question. So under 49 60, there is an exemption for those who perform medical services. In the case of licensed medical professions professionals, they are excluded from the excise tax under the medical services carve out. So in this case, they would not be subject to the excise tax. Let's see if we have, I know Eric answered a few during his presentation.

Eric Beining:I see a couple here that I'd like to address real quick since we have another minute. Cecilia asked in regards to the corporate floor, this is for total contributions not per contribution, correct, Cecilia? That's correct. When looking at the corporate floor, the 1%, not every charitable contribution that a corporation would give would have to exceed the 1%. So you're looking at everything, all the entire bucket of contributions given throughout the year in total, not on a per contribution basis. And then I see one other question here from Danielle that says, does this floor apply to both C corporations as well as S corporations? So that's That's a great question. The rules do vary between C and S corps. C corporations obviously have the 1% floor S corporations being a pass through entity don't have the same structure as C corps, right? So what will happen in that case is those charitable contributions generally pass through on the K one to the shareholders, and then there's charitable contributions would be potentially taken on the shareholders 10 40 subject to limitations at the shareholder level on their personal tax return. So both great questions. Thank you.

Ravika Shankar:We also do want to mention that we do see a lot of questions. Unfortunately with the time restriction, we won't be able to get to all of them today, but we will follow up with some email responses. And then with that, I hand it back to Astrid to close this out. I want to thank everyone for joining us today and hopefully you found it informative. Thank you.

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