2018 Nonprofit Tax Matters Update

by Keith Jennings, CPA

A multitude of changes have occurred in the nonprofit industry in 2018. These changes effect both IRS/tax regulations as well as financial statement standards. In this newsletter, we will cover the tax issues.

Tax Cuts and Jobs Act Effect on Nonprofits

You may be surprised to find out that the recently enacted legislation substantially impacted the nonprofit industry. Under the rationale of aligning nonprofits with for-profit organizations with respect to tax law, some of these changes may affect the bottom line of your organization. Here are some of the changes that could affect your organization:

  • Excise tax on nonprofit executive compensation – there will be penalty of 21% on compensation over $1 million.
  • Unrelated business tax on transportation benefits for employees – starting in 2018, if a nonprofit pays commuting/parking benefits, those charges will be considered unrelated business income (UBI) to the nonprofit, and they will have to pay tax on that amount. From what we’ve seen so far in 2018, the response to this has been mixed. Some nonprofits are going to “bite the bullet” and continue to pay the benefit as well as the unrelated business income tax (UBIT). Some other organizations have been increasing staff salaries and then having the staff pay for the parking themselves on an “after-tax” basis. Others are getting rid of this benefit moving forward. One other possible effect of this tax law change going forward could be the potential renegotiating of office leases to include parking in the overall lease agreement. As far as we know, the IRS has not taken a stance on this subject, but stay tuned in the remainder of 2018 for any potential updates on this subject.
  • Other changes to UBIT – if a nonprofit organization has multiple streams of UBI, in prior years the loss from one stream could cover the income from another. Starting in 2018 that will no longer be allowed. Also, starting in 2018 only 80% of UBI will be able to be covered by net operating losses. Prior year’s losses are grandfathered in.

The National Council of Nonprofit’s website is a great resource for nonprofit organizations. They highlighted many of these changes in a great checklist on their site – https://www.councilofnonprofits.org/sites/default/files/documents/tax-law-checklist-nonprofits.pdf.

Disclosure Requirements on Form 990 Schedule B for Certain Organizations

Nonprofit organizations are generally required to disclose on their Form 990 Schedule B each year the names and addresses of donors who contributed over $5,000 during the year. That information must be included in the filing with the IRS, but it is removed for public disclosure on websites such as www.guidestar.org. However, in July 2018 the IRS released Revenue Procedure 2018-38. It stated that starting in calendar year 2018 only 501 c 3 organizations (charities) are required to complete this information. Other types of nonprofit organizations such as 501 c 4 social welfare organizations and 501 c 6 trade associations are no longer required to complete Schedule B. This guideline does not affect private foundations.

The IRS states in the Revenue Procedure that this personally identifiable information is not needed or being used by them. Also, they state that the Schedule increases compliance costs, consumes IRS resources and poses a risk of inadvertent disclosure of private information. However, much like the Supreme Court decision in Citizens United, some citizens and watchdog groups favor stronger public disclosure rules for these types of organizations.

Look for Part II in our next newsletter which will cover financial statement and accounting changes.