On Thursday, December 19, Congress passed the Further Consolidated Appropriations Act, 2020 (H.R. 1865) (the Act) which was then signed into law by the President the next day. Included in this wide-ranging bill were a number of tax-related items, two of which directly affect exempt organizations.
The Act calls for the repeal of IRC Section 512(a)(7) Increase in unrelated business taxable income for certain fringe benefit expenses. This recent addition to the tax code has been controversial from the start as many exempt organizations who had never previously been subject to tax were suddenly subject to tax based on certain qualified transportation fringe benefits provided to employees such as parking and transit expenses. The Act is retroactively effective as of December 31, 2017, essentially treating the Code section as if it was never put in place. This seems to leave the door open to filing amended returns for periods where tax was paid on these expenses.
Additionally, the Act modifies the tax rate for the excise tax on net investment income of private foundations. In the past, private foundations have been subject to a standard 2% excise tax on net investment income generated for the year, with the opportunity to qualify for a reduced 1% rate dependent on certain distribution requirements being met. Beginning with tax years starting after December 31, 2019, a standard 1.39% tax rate on net investment income will be applied, with no reduced rate available.
Overall, these changes should reduce some tax complexities faced by many exempt organizations.
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