On December 20, 2017, the Senate and the House of Representatives voted to pass the Tax Cuts and Jobs Act.
In a memorandum, Cadwalader attorneys summarized key provisions of the tax reform bill that will affect not-for-profit, tax-exempt organizations. The attorneys identified the following important aspects of the bill:
- Imposes a 1.4% excise tax on the net investment income of private colleges and universities that have (i) more than 500 full-time equivalent students, of which more than 50% are located in the United States, and (ii) assets (excluding assets used directly in carrying out the educational institution's exempt purpose) of at least $500,000 per full-time equivalent student;
- For charitable and religious organizations and public utilities and municipalities that are tax-exempt under either section 501(a) or section 115(1) of the Code, imposes a 21% excise tax on any compensation in excess of $1 million and certain excess "parachute" payments paid to any of an organization's five highest-paid employees;
- Imposes an unrelated business income tax on tax-exempt organizations on the value of certain employee fringe benefits, including transportation, parking facilities and on-campus athletic facilities;
- For tax-exempt organizations that carry on more than one unrelated trade or business, requires a separate computation of unrelated business taxable income with respect to each trade or business;
- Repeals the exclusion from gross income of interest on a bond issued to advance refund another bond;
- Repeals the rules relating to, and prospective authority to issue, tax credit and direct-pay bonds;
- For the purposes of charitable contribution deductions, increases the adjusted gross income limitation on cash contributions from 50% to 60%;
- Denies a charitable deduction for a donation that secures the right to purchase tickets for seating at an athletic event in a stadium at an educational institution; and
- Repeals the exception to the contemporaneous written acknowledgment requirement for contributions of $250 or more when the donee organization files the required return.
The attorneys further listed various provisions from the House tax reform bill that were excluded from the final bill.
The memorandum was authored by Kara Altman, Jean Bertrand, Pamela Landman, Brian McGovern, Paul Mourning and Linda Swartz.
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