February 04, 2019

CUA Law Professor Roger Colinvaux spoke on the Tax Exempt Tax Reform: The Impact of TCJA on Tax-Exempt Organizations panel sponsored by the D.C. Bar on January 29, 2019. He was also quoted in a Feb. 1 Tax Notes article entitled "Nonprofits Look to Resurrected Bill to NixUBIT Rules."

Nonprofits Look to Resurrected Bill to Nix UBIT Rules

From: Tax Notes
Date: February 1, 2019
By: Fred Stokeld

Nonprofits are putting their weight behind a bill that would repeal Tax Cuts and Jobs Act provisions they say could devastate tax-exempt organizations.

The Nonprofits Support Act (H.R. 513) targets two TCJA provisions that expand the unrelated business income tax, provisions that critics say are burdensome, costly, and unfair.

The bill, introduced by Rep. K. Michael Conaway, R-Texas, in mid January, is identical to one Conaway submitted during the last Congress. It would repeal section 512(a)(6), which requires a tax-exempt organization to calculate unrelated business taxable income separately for each unrelated trade or business if it has more than one; and section 512(a)(7), which imposes UBIT on qualified transportation fringe benefits provided to exempt organization employees.

Ben Kershaw of Independent Sector applauded the bill's resurrection, citing an estimate from his group that the fringe benefits tax would divert about $12,000 a year from a nonprofit's exempt activities.

"Nonprofit organizations and their communities can't afford to see $12,000 per year diverted away from their missions," Kershaw told Tax Notes. He also supports Conaway's proposed repeal of section 512(a)(6).

"We are delighted to see the reintroduction of Representative Conaway's bill," said David L. Thompson of the National Council of Nonprofits.

Thompson's organization endorsed Conaway's original bill in July 2018. Since then, nonprofits have dealt with myriad issues stemming from these provisions: unhelpful IRS and Treasuryguidance, tax payments coming due, and the need to use professional advisers to navigate the new rules, Thompson said.

Outlook Uncertain

Thompson explained that repeal would require Democrats and Republicans to agree on a tax bill, which could be challenging given the talk of another government shutdown, calls for disclosure of tax returns, and other actions outside nonprofits' control.

On the merits, the bill's chances of passage should be high, said Roger P. Colinvaux of the Columbus School of Law at Catholic University. Both provisions are misguided and impose high compliance costs on nonprofits, without a sound basis in policy, he said.

However, repeal would cost money, which could affect the bill's chances, Colinvaux added.

At a January 29 tax conference in Washington, Sandra G. Swirski of Urban Swirski & Associates LLC, whose firm is tax counsel to a coalition seeking repeal of section 512(a)(7), said eliminating the tax could result in a roughly $7 billion loss in federal revenue over 10 years.

"That's something we're going to have to address," Swirski said.

"My hope is that once the new leadership of the taxwriting committees takes a close look at these provisions, they will see them as folly and advance a quick repeal, perhaps even as part of a vehicle that reexamines charitable giving incentives and considers other, more sensible, reform initiatives," Colinvaux said.