Taxing Times Ahead | The Nonprofit Sector and the 'One Big Beautiful Bill'

This bill includes several provisions that could significantly alter the financial landscape for nonprofits. Understanding why this bill matters is crucial. The 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 NFP’s mission. We'll then explore five key provisions of the bill that have significant implications from nonprofit organization. We'll look at the excise tax and private foundation investment income. This provision increases the excise tax rate on the net investment income of private foundations, potentially reducing the funds available for grant making. Then 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 presumably aims to ensure the wealthier institutions contribute more to federal revenue.

Then we'll look at excise compensation tax expansion. The proposed amendment broadens the definition of a covered employee, which could significantly increase the number of individuals subject to the excise tax. Then fourth, we'll look at the corporate charitable giving floor. The bill introduces a minimum threshold for corporate charitable contributions, and then the last provision we look at is the unrelated business income and the expanded scope of taxable activities. This section of the bill broadens the definition of unrelated business income, meaning more activities could be subject to taxation affecting the revenue streams on nonprofits. Then we'll summarize the presentation by highlighting the key takeaways. Understanding these provisions is essential for nonprofits to navigate the new regulatory landscape effectively. And then lastly, we'll suggest some useful tips in how to prepare these possible changes. Early preparation and strategic planning will be crucial for nonprofits to adopt the new requirements. Now I'll hand it over to Eric to take us through the review of the one big beautiful bill.

Eric Beining:Thank you. So with the one big beautiful bill, we wanted to kind of go through, provide you with an overview of the timeline and a little about the legislative process. So on May the 16th of this year, the bill was formerly introduced in the House of Representatives by representative Jody Arrington, a republican from Texas on May the 20th. The house budget committee reported the bill with committee report one 19 dash 1 0 6. On May the 21st, the budget committee held a late night session to finalize the bill for floor debate, and then on the early hours of May 22nd, a final vote was held passed by the house by a narrow margin of two 15 to two 14 with one member voting present. And then at 6 56 in the morning, a motion to reconsider was laid on the table finalizing house passage. Now to provide you a little bit more information about the last two steps I've gotten questions on what is a motion to reconsider and why was that phrase used?

So a motion to reconsider after a vote is taken, a member who voted on the winning side can move to reconsider the vote. This motion allows the house to revisit and potentially change the outcome of that vote on the other side, what does it mean to lay something on the table? To lay a motion on the table means to set it aside or in practice it stops the motion without further discussion. So when the house says motion to reconsider was laid on the table, it means we're not going to reconsider this vote. It's final. So this is a common tactic used to quickly finalize a decision and prevent any reversal, and it's often used immediately after a vote passes to lock in the result.

So what is the current bill status? So the bill is now awaiting consideration In the Senate where republicans currently hold a 53 seat majority, it is expected to proceed under budget reconciliation rules which bypass the filibuster and require only a simple majority. So in regards to the key features of the budget reconciliation and in the US Senate, when legislation is considered under the budget reconciliation rules, it means the bill is being processed through a special legislative procedure that allows certain budget related bills to pass with a simple majority or in this case 51 votes. So unlike most legislation in the Senate, which requires 60 votes to overcome a filibuster reconciliation, bills can pass with just a simple majority. This makes it a powerful tool for passing budget tax and spending related legislation, especially when the Senate is closely divided. So key features of the budget reconciliation is it's going to have to originate from the budget resolution.

So Congress must first pass a budget resolution that includes reconciliation instructions to specific committees has a limited scope, so only provisions that directly affect federal spending revenues or the debt limit can be included. This is enforced by the bird rule. So Byrd rule restrictions are named after Senator Robert Bird. This rule prevents extraneous provisions from being included. So a provision would be considered extraneous if it has only incidental budgetary effects, doesn't change spending or revenue, and increases the deficit beyond the budget window, which is usually 10 years. Senators can raise a point of order to strike such provisions. And then as far as the time limited debates debate on the reconciliation bills is limited to 20 hours preventing the filibuster.

So this slide is a way to track the current status of the one big beautiful bill. It gives you a website address to go to so that anytime in the process you can see where it currently is sitting with the Senate and how it is progressing throughout the process. So moving on to our next section, we'll talk about the impact of the bill for nonprofits I So some focus areas for nonprofits, this legislation proposes significant changes to how private foundations, universities, and charitable entities 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 sustainability. Understanding and preparing for these changes now is essential not just for compliance but to protect your mission and the communities that you serve. One big beautiful bill currently under consideration in Congress includes several provisions that could significantly impact nonprofit organizations. So to stay ahead of these changes, nonprofits should take proactive steps in the following areas. As Ika said, we will, we talk about each of these areas in a little more detail further on in our presentation, but we wanted to provide you a high level overview right now. So the first thing is reviewing endowments and investment structures. So the bill proposes a tier proposes a tiered excise tax on private foundation and university endowments with rates as high as 10% for large asset basis.

Action steps by the nonprofit could include conducting a comprehensive audit of your endowment and related activities, model the potential tax impact under the new tiers and consider restructuring or reallocating investments to reduce exposure. You also could evaluate executive compensation. So as we previously mentioned, the bill expands the excess compensation tax to apply to all covered employees earning over 1 million, not just the top five. So action steps may include things like identifying all employees and contractors who may be affected, review contracts and consider compensation restructuring and consulting with your legal counsel on compliance and reporting obligations.

Unrelated business income exposure is another thing that is expanded on by the bill, including things such as parking benefits for employees, certain research income, even if that research is publicly available. Action steps could include reviewing your fringe benefits and research related revenue, adjusting benefit offerings or reclassify activities where possible and prepare for new unrelated business income tax reporting requirements. In addition, you can take steps to educate your board and donors and you can update financial and legal compliance systems in order to better align you with the potential new provisions that the bill offers. With that, I'll pass it back over to Ravika.

Ravika Shankar:I'll discuss the excise tax and private foundation investment income, the excise compensation tax expansion, and then the unrelated business income and expanded scope of taxable activities while Eric will discuss the excise tax on university endowments and then the corporate charitable giving floor. Now we go into the excise tax on private foundations. The one big beautiful bill proposes a substantial increase in the excise tax rates on the net investment income of private foundations. Under the current law, private foundations are subject to flat rate of 1.39% on their net investment income. This rate applies uniformly regardless of the amount of the net investment income reported. However, the new bill introduces a tiered rate structure with rates ranging from 1.39% to as high as 10%. Depending on the value of the foundation's assets. It is essential to keep in mind that the proposed rates will be based on the foundation's assets.

I'll review the current bill and highlight some reminders and definitions that relate to the excise tax and private foundations. As mentioned, the current law imposes the flat tax rate of 1.39% on the net investment income of most domestic tax exempt private foundations. This excise tax is designed to ensure that private foundations contribute to the federal revenue even as they operate for charitable purposes and 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. The tax must then be reported on Form nine 90 pf this form is used by private foundations to report their financial activities and ensure compliance with federal tax regulations. It provides detailed information on the foundation's revenue expenses, grants and investments, allowing the IRS to monitor the foundation's operations and verify its adherence to tax exempt status rules. Net investment income is calculated as the amount by which the sum of gross investment income and capital gain net income exceeds the deductions allowed. Gross investment income includes interest, dividends, rents, royalties, while deductions encompass ordinary and necessary expenses related to the production of investment income, such as compensation of officers salaries and wages of employees outside professional fees, and other such expenses.

Under the proposed bill. The excise tax rates on the net investment income will vary depending on the total assets held by the foundation. This represents a significant shift from the current flat rate of one point 39%, which applies as I mentioned, uniformly to all private foundations regardless of their asset size. The new bill introduces a tiered rate structure, presumably designed to ensure that wealthier foundations contribute more to federal revenue. Foundations with smaller asset basis will continue to pay lower rates while those with higher assets will face higher rates potentially up to 10%. It is presumed that this tiered approach aims to create a more equitable tax system by aligning tax rates with the financial capacity of the foundations. Now, foundations with assets less than 50 million will maintain the current tax rate of 1.39%. This ensures that smaller foundations which may have limited resources are not disproportionately burdened by higher tax rates.

The next tier is foundations with assets between 50 million and 250 million will be subject to a 2.78% rate. This is a moderate increase from mid-size foundations. Then the next tier foundations with assets between 250 million and 5 billion will face a 5% rate. This is a significant increase. Then lastly, foundations with assets of 5 billion or more will be taxed at the highest rate of 10%. This substantial rate is presumably designed to ensure that again, wealthiest foundations make a meaningful contribution to federal revenue. Private foundations will be significantly impacted by the shift in the tax rate. Foundations with larger asset basis will need to reevaluate their financial strategies and investment portfolios to optimize their tax liabilities. Under the proposed new system. Accurate valuation of assets will be crucial to ensure compliance with new proposed definitions and reporting requirements.

The bill introduces a detailed definition of assets for private foundations. According to the bill, assets are defined as the aggregate fair value of all aspects of the private foundation as of the close of the tax year. This comprehensive valuation includes all property investments and other financial holdings of the foundation. The fair market value is determined on the average of the foundation's monthly cash balances, the average of the fair market values of the securities for which market quotations are readily available and the fair market value of all assets held by the foundation. The bill also stipulates that the assets and net investment income of any related organization with respect to the private foundation shall be treated as those of the private foundation and included in the calculation of the excise tax. This means that the financial activities of related organizations will directly impact the tax liabilities of the private foundation.

Presumably the inclusion of the related organization's assets ensures a comprehensive assessment of the foundation's financial capacity. The bill defines a related organization as any organization which a controls or is controlled by. The private foundation is controlled by one or more persons who also control the private foundation. This broadened definition encompasses a variety of entities including supporting organizations and donor advice funds, which may have significant financial interaction with the private foundation. For example, if a private foundation controls a supporting organization, the assets and net investment income of that supporting organization will be aggregated with those of the private foundation for excise tax purposes. This ensures that all financial resources available to the foundation are considered in the tax calculations. Foundations must then accurately report the fair market value of their assets and those of any related organizations to ensure compliance with the proposed new regulations.

The bill has specific exceptions to the inclusion of related organizations assets and net investment income in the calculations for private foundations. These exceptions are designed to prevent double counting and ensure that only relevant financial activities are considered. Firstly, the bill stipulates. So the assets and net investment income of a related organization cannot be claimed by more than one private foundation. This provision ensures that the financial resources of related organizations are not double counted, which could otherwise inflate the tax liabilities of multiple foundations. By ensuring that each related organization's assets and income are only attributed to a single foundation, the bill aims to maintain accurate and fair tax calculations. Secondly, the bill addresses the control and benefit criteria for related organizations. If a related organization is not controlled by the private foundation, its assets and net investment income that are not intended or available for use or benefit of the private foundation would not be taken into account. This means that only the financial activities directly benefiting or controlled by the private foundation will be included in the excise tax calculations. The provision aims to ensure that the tax calculations reflect the true financial impact of the foundation's activities without including unrelated or external financial resources.

To illustrate the impact of the proposed changes, let's consider an example involving a private foundation and its related organization. Imagine a private foundation with 50 million assets and net investment income of 250,000. Additionally, this foundation controls a related organization with 25 million in assets and net investment income of 50,000. Under the current law, the net investment income of both the private foundation and the related organization is subject to the flat tax rate of 1.39%. This results in a total tax liability of approximately 4,000 under the proposed bill. The tax rate is determined based on the combined assets of the private foundation and its related organization. Since the total assets among to 75 million, this falls within the tier of the 50 million to 250 million range and gives the applicable tax rate to be 2.78%. Consequently, the tax liability would increase approximately 8,300, which is almost double the current amount.

With this proposed new tax tier, private foundations may be looking at much higher taxes, which could reduce funds available for grant making and other charitable activities. Private foundations may need to reevaluate their financial strategies and investment portfolios to adopt to the new tax tier. Foundations will also need to carefully assess their asset management practices to optimize their tax liabilities under the new system. To stay ahead of these changes, foundations may consider the following strategies, conduct a thorough assessment of their foundation's assets to ensure accurate valuation and compliance with the new definitions, identify and evaluate financial interactions with related organizations to understand their impact on the foundation's tax liabilities. And then lastly, work with financial advisors to develop strategies that optimize asset management and minimize tax liabilities. Also, the foundations should stay informed. Foundations should keep up to date with legislative developments and guidance to ensure proactive financial management and compliance. By understanding these changes and implementing strategic measures, foundations can better navigate the new proposed tax landscape and continue to support their charitable missions effectively. So when is this proposed bill going to be effective? If it does gets passed, again, this is proposed law and if it gets passed, the effective date of these changes would apply to taxable years beginning after the date of the enactment of the bill. And with that, we will move into our second polling question.

Bella Brickle:Poll #2

Ravika Shankar:I'm just looking to some poll questions to see if we have any.

Thank you.

Right? So majority, 90% of you did get it correct. It is based on the foundation's asset with the new proposed bill. Thank you, Eric. Over to you.

Eric Beining:Thank you. So moving on to the excise tax on university endowments. So under the Tax Cuts and Jobs Act of 2017, the excise tax and university endowments first became an issue. The issue was that large sums of accumulated endowments were building at universities and private colleges. So the action was taken is that the government decided to create a new excise tax on these endowments. The result was the excise tax, which applies to the net investment income of university endowments, was introduced in the Tax Cuts and Jobs Act of 2017 at a flat rate of 1.4% and applies to private colleges and universities with at least 500 tuition paying students and endowment assets of $500,000 or more per student.

The proposed change under the one big beautiful bill, the issue still remains the same in that large sums of accumulated endowments are building at universities and private colleges. The proposed action under the bill suggests that a tiered tax structure be put in place based on student adjusted endowment and that those tiers are as follows. Tax rate of 1.4% would be on the amounts from 500,000 to 750,000 per student. It increases to 7% in the range of 750,000 to 1.25 million. From 1.25 million to 2 million, we see it increased to 14% and finally at over 2 million, it reaches the maximum tax rate of 21% Post change under the one big beautiful bill would also expand the definition. So net investment income now includes student loan interest and royalties. This has potential results. Critics claim that the increased tier, excuse me, the increased tiered rate excise tax could create financial strain on universities, have an impact on students by their potentially being fewer scholarships 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 policy concerns. Where we see university policies start to drift towards a focus on revenue generating programs to maintain financial stability.

In addition, there are some things for, I'm sorry. In addition, there are some things for university boards to consider. So there are several practical steps that university board members can take to better understand and respond to the bill's impact on university endowments. Number one, educate themselves on the legislation. 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 bill. Could also analyze the university's endowment position and ask for a detailed report on current endowment per student projected tax liability under each of the bills, tiers, historical and projected investment returns. And they could request scenario modeling to understand how the different tax tiers affect long-term financial planning. In addition, the board can engage in strategic dialogue included in the bill, we have impacts as a standing agenda item in their finance and investment committee meetings. They could discuss whether to adjust spending policies, how to communicate with donors about the tax effect on their gifts and whether to restructure endowment assets or create new giving vehicles. They could advocate and collaborate by joining or supporting coalitions of universities advocating for changes or exemptions. Encourage the university's government relations team to engage with lawmakers or consider submitting public comments or testimony. If the bill is still under review, it's important to stay informed. Another good example is described updates from the National Association of College and University Business Officers, the Council on Foundations and also the IRS and Department of Education for implementation guidance. With that, we go to poll number three.

Bella Brickle:Poll #3

Ravika Shankar:Great. And majority of you got it correct. The proposed bill does now would include student loan interest and royalties. Okay, onto the next section, excise compensation tax expansion, excise compensation tax. 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 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. Under the current law 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. Under current law, 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 excess parachute payment made to a covered employee under IRC section 49 60. A parachute payment is defined as any payment in the nature of compensation to or for the benefit of a covered employee if the payment is contingent on the employee's separation from employment with the employer. These provisions have been effective for the taxable years beginning after December 31st, 2017.

Now form 47 20 is essential for accurate 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. The form is crucial for ensuring compliance with various excise tax provisions Form nine 90 and nine 90. PF include trigger questions that relate to information required on Form 47 20. These questions help identify whether an organization needs to file Form 47 20 based on its compensation practices and other activities. Now, our related organizations included, this is specifically 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 if there is a significant influence or controlled relationship between the organizations, the remuneration must be reported. If individuals who control the taxes exempt organization also control the related organization, the remuneration is included. If the organization is a supported organization or supporting organization of the tax exempt organization during the taxable year, the remuneration is included. And then in the case of a 5 0 1 C nine Veeva, if the related organization establishes, maintains, or makes contribution to the tax exempt organization, the remuneration is included.

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

Since the tax exempt organization paid 800,000 out of the 1.1 million, it is reasonable for approximately 73% of the tax it is responsible. My apologies for approximately 73% of the tax, which amounts to about $15,330. The related employer having paid 300,000 of the 1.1 million is responsible for the remaining 27% of the tax, which amounts to 5,670. Now each related employer is required to file a Form 47 20 to report its proportionate share of the excise tax. So each employer has to file their own 47 20 showing their tax amount. Active reporting and payment of the excise tax are crucial for compliance with IRS regulations.

Under the current 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 of any preceding tax year beginning after December, 2016. This means that once individual is identified as a covered employee, they retain the status. Organizations should track all forms of remuneration, including wages, bonuses, and certain fringe benefits. To ensure accurate identification of covered employees. Deferred compensation is ConEd when it vests not when it's paid, which means a large deferred compensation payout in a given year could elevate an executive into top five earners. Here, the timing of compensation recognition plays a key role. Accurate tracking is essential for compliance with IRC section 49 60.

Now under the proposed bill, the definition of covered employees is expanded to include any covered employee receiving over 1 million in compensation. This includes deferred compensation and severance arrangements. It'll no longer be just the top five, but all covered employees, which significantly expands 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 excess tax on excess compensation. This can have a substantial impact on financial planning and compensation strategies as organizations will lead to account for a broader range of employees in their tax calculations. Deferred compensation and severance arrangements are now explicitly included in the calculation of total compensation. With the expanding definition, tax exempt organizations may face increased reporting requirements and may need to file additional documentation to comply with the excise tax provisions. This includes accurately tracking all forms of remuneration and ensuring that compensation packages are designed to maximize to minimize tax exposure. Regular reviews of compensation practices will be essential to maintain compliance and avoid penalties. If the proposed changes go into law, it would apply to taxable years beginning after December 31st, 2025. This means that organizations will need to prepare for these changes in advance to ensure compliance starting from the 2026 tax year. So these are changes that you need to be thinking about. Now. With that, I will hand it over to Eric for the next section.

Eric Beining:Thank you. So now we're moving on to the corporate charitable giving floor. So it's kind of a comparison between current and proposed law. So the current law says that corporations may deduct charitable contributions up to 10% of taxable income, but there is currently no minimum requirement Under the proposed change, there'd be the introduction of a 1% minimum floor for corporate charitable deductions. So what are the potential results of this creating the possibility that the incentive for corporate giving is reduced unless it exceeds the 1% minimum floor requirement. So let's walk through a quick example. Corporation has the following fact pattern, taxable income of $100 million, a charitable donation of 800,000. So before the one big beautiful bill, the corporation would be allowed to deduct the full $800,000 after the one big beautiful bill. In this situation, no deduction would be allowed because the donation falls below the 1% floor in this case 0.8%.

So to recap, here are some key talking points on the corporate charitable giving floor provision in the one big beautiful bill that nonprofits can use when engaging stakeholders, policymakers or the public. So once again, what does the provision do? The bill introduces 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 deductions remains unchanged. Some of the concerns that have been raised is that this potentially will disincentivize smaller donations. So corporations that give less than 1% of their income would receive no tax benefit, potentially reducing overall giving. This has the potential to have a negative impact on smaller nonprofits. Organizations that rely on modest corporate gifts may see a decline in support. It creates an artificial barrier. Floors and ceilings can distort natural giving patterns and reduce flexibility in corporate philanthropy.

Some arguments for reconsideration would be charitable giving should be encouraged at all levels and not penalized below an arbitrary threshold. Smaller and mid-sized businesses may disproportionately be affected as they often give based on community needs rather than a tax strategy. And the provision could potentially undermine corporate social responsibility efforts that are not tied to large scale giving. So what can nonprofits do? They can educate their corporate partners about the change and its potential implications. They can advocate for repeal or modification of the floor through coalitions and public, and they could also consider diversifying funding sources to reduce reliance on corporate gifts that may be affected. With that, I will turn it back over to ika.

Ravika Shankar:Thank you Eric. So our next section, the unrelated business income and expanded scope of taxable activities as per section five 12 A. One of the RRC unrelated business Taxable income means the gross income derived by an organization from any unrelated trade or business regularly carried on by it. The income is calculated less of deductions allowed, which are directly connected with carrying on such trader business. UBTI can include income from activities such as advertising like revenue from ads placed in publications or websites, rental of debt, finance property and sale of merchandise like profits from selling items that are unrelated to the organization organization's exempt purpose. It is 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 dollars or more of gross income from an unrelated business must file form nine 90 T and most nonprofits unrelated business income is taxed at 21% flat federal corporate income tax rate.

The bill proposes amending section five 12 A to increase unrelated business taxable income for tax exempt organization. This amendment includes certain fringe benefit expenses for which deductions are disallowed. These expenses are non-deductible under IRC section 2 7 4, meaning they cannot be subtracted from the organization's taxable income. Example, if a tax exempt school provides transit passes to employees, the cost of these passes will be added to the school UBTI. The bill proposes to include expenses paid or incurred for qualified transportation fringe benefits in UBTI Qualified transportation fringe benefits encompasses several types of transportation related expenses provided by employers to the employees. Examples of these fringe benefits include employee parking, which are costs associated with providing parking facilities for employees and transit benefits which are expenses related to providing transportation benefits such as transit passes or commuter vehicle rights. Transportation in a commuter highway vehicle refers to the costs associated with providing employees with transportation in a vehicle that seats at least six adults excluding the driver and is used for commuting between the employee's home and workplace Transit passes cover the expenses for public transportation such as bus or train passes provided to the employees.

Additionally, parking facilities using connection with qualified parking will be included in UVTI. If this does sound familiar, it is because we've been here before with the parking tax, which was introduced in the tax cut and job act of 2017. This provision required organizations to count the cost of parking and transportation benefits for employees as taxable income. Nonprofits were required to increase their unrelated business taxable income by the cost of these non-deductible transportation expenses, and these organizations were then taxed the rate of 21% on parking expenses exceeding 1000. This meant that we were seeing nonprofits who have never filed a nine 90 T being required to file a nine 90 T and then pay taxes. The approach faced significant criticism due to its complexity and the unusual the idea of taxing a business expense as income. As a result of the widespread criticism, Congress decided to repeal the tax retroactively in 2019. Nonprofits that had paid unrelated business income tax due to this provision were able to file an amended form nine 90 T to claim a refund for any taxes paid related to qualified transportation French benefits. I remember when this happened one year we were filing so many nine 90 Ts and then the following year we were amending those and asking for the refund. So it's a possibility that this may be happening again.

There are exceptions to this increase. It will not apply to churches. There are integrated auxiliaries and conventions or associations of churches. These entities are automatically considered tax exempt. Religious activities of any religious order are also exempt from the increase in UBTI and this ensures that core activities of religious orders remain unaffected by the news tax provisions. And then church affiliated organizations describe in section 5 0 1 C that are not required to file an annual return under 60 33 A one by reason of section 60 33 A three B are also exempt. Any increase in UBTI because of the inclusion of qualified fringe benefit expenses will be treated as UBTI. With respect to unrelated trade or business separate from any other related trade or business of the organization, this means that these expenses will be siloed and reported independently, ensuring that they do not affect the UVTI calculations of other unrelated trades or businesses within the organization.

When will this become effective? If it gets passed? So the proposed changes would apply to months paid or incurred after December 31st, 2025. This means that organizations will need to prepare for these changes in advance to ensure compliance starting from the 2026 tax year. Another section of the bill proposes to amend five 12 B nine by specifically limiting the exclusion of research income to only publicly available research. This change aims to ensure that only research that is accessible to the public qualifies for tax benefits. The presumed intention behind this amendment is to promote transparency and public access to research findings. Only research that is made publicly available would benefit from the exclusion, potentially influence in how institutions plan and disseminate their research projects. Institutions may need to adjust their strategies to ensure their research meets the criteria for public accessibility. This may involve publishing research findings and open access journals or making them freely available on institutional websites. Then institutions may also need to consider the implications of this change on their funding and collaboration strategies. Research projects that are funded by private entities are conducted in collaboration with industry partners may need to be structured in a way that ensures the findings are made publicly available. This could involve negotiating terms that allow for the publication of research results or creating a grievance that prioritize public access.

Current provisions of section five 12 B nine, they address the tax treatment of income research from activities conducted by certain tax exempt organization. It applies to organizations operate primarily for the purpose of carrying on fundamental research. This section currently specifically exclude 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 operated 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. This provision supports the mission 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 UETI thereby maximizing the funds available for research. And again, if this gets passed, the amendment made by the section, it'll apply to amongst received or accrued after December 31st, 2025. And again, this means that the rule that foundations or other institutions will be subject to this rule starting for the 2026 tax year. And then with that we go into our last polling questions.

Bella Brickle:Poll #4

Ravika Shankar:In the meanwhile, Erin, you want to, do you just want to go over some key takeaways from today's presentation?

I don't think we can move this slide. There we go. Great.

Thank you.

Eric Beining:Okay, so some key takeaways from today. Excise tax on private foundation investment income will move from a flat tax rate of 1.39% to a tiered tax system based on total assets up to 10% total assets and net investment income of related organizations of the private foundation will be included in calculations. Excise tax on university endowments will move from a flat rate of 1.4% to a tiered tax system based on student adjusted endowment up to a maximum rate of 21%. The definition of covered employee under section 49 60 of the Internal Revenue Code will be amended to include all covered employees, current and former. Instead of just the top five highest, the incentive for corporate giving is reduced unless it exceeds the 1% minimum floor requirement. Unrelated business taxable income will increase to include certain fringe benefit expenses similar to the parking tax, which was introduced in the tax cuts in Jobs Act of 2017. Exclusion for unrelated business income tax and research income will be limited to publicly available research, and most of these changes if passed in their current state, will take effect after December 31st, 2025.

Ravika Shankar:Sorry. And with that, we will end our presentation. Eric did review some actions that NFPS can take right now in order to prepare for any proposed changes. We want to thank you for attending today's webinar and I hope it was very informative for everyone attending. Have a great day. Thank you. I'll hand it over to Bella now to end it.

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