Congress Repeals Tax on Nonprofit Transportation Benefits

On December 17, the U.S. House of Representatives approved legislation to repeal the tax on nonprofit parking and transportation expenses as part of a large tax and spending package. The U.S. Senate approved the bill on December 19, and President Donald Trump was expected to sign it into law on December 20. The Center and other organizations have been advocating for Congress to repeal this confusing and problematic tax on nonprofits since it was first enacted two years ago as part of the Tax Cuts and Jobs Act. The repeal was included in a tax package that was a part of one of the two spending bills that Congress passed this week. In recognition that this tax (which was codified as Section 512(a)(7) of the Internal Revenue Code) was bad policy, Congress repealed it retroactive to its enactment. Nonprofits that paid unrelated business income tax on their parking and transportation benefits in 2018 and/or 2019 should be able to get a refund from the Internal Revenue Service; we will let you know once the IRS provides guidance on how to seek this refund. Thanks to the many nonprofits who tweeted and called their members of Congress about this provision and to Congressman Mark Walker (R-NC), Congressman David Price (D-NC), and Senator Richard Burr (R-NC), who helped convince congressional leaders to include the repeal in this week’s legislation. 

The tax provisions in the bill include several other items of interest to nonprofits, including:

1. A replacement of the current two-tier private foundation excise tax with a single rate of 1.39%. This language comes from the Private Foundation Excise Tax Simplification Act (H.R. 4953), a bill recently introduced by Congressman George Holding (R-NC) and supported by the Council on Foundations and other foundation-serving organizations.
2. An extension of the tax credit for employers offering paid family leave through December 31, 2020. This credit, which was set to expire this month, is not available to nonprofit employers. A separate bill (H.R. 3323) that is pending in the House would extend this tax credit to tax-exempt nonprofit employers.
3. The extension of several disaster tax relief provisions, including lifting the adjusted gross income cap for tax-deductible charitable contributions going to disaster relief, to recent natural disasters. The disaster tax relief provisions are virtually identical to those that Congress typically approves after natural disasters and do not include the Center’s recommendations for tax provisions that would help nonprofits engaged in disaster relief and recovery work.
4. A provision raising the age when individuals must start making minimum distributions from their individual retirement accounts (IRAs) from 70 1/2 to 72 years of age. Nothing in this new law makes changes to the IRA charitable rollover, a popular federal tax incentive for charitable giving. Individuals aged 70 1/2 and older may still make tax-free distributions to nonprofits from their IRAs, even if they are not yet required to make distributions from their IRAs because they have not yet turned 72.