Tax Cuts and Jobs Act: Senate Bill Revisions Affecting Tax-Exempt Organizations

December 5, 2017

The U.S. Senate produced its version of the Tax Cuts and Jobs Act early on the morning of Dec. 2, 2017.  Most of its terms closely track the Chairman’s Mark that the Senate Finance Committee approved Nov. 16, but a few key provisions affecting tax-exempt organizations were deleted or substantially modified, and one new item added. 

Unrelated Business Income Tax (UBIT) 

The Senate bill no longer proposes to treat revenue from the sale or licensing of a tax-exempt organization’s name or logo as taxable income subject to UBIT. 

Intermediate Sanctions

All proposed changes to the intermediate sanctions rules were removed from the bill.

Professional Sports Leagues

The bill deleted a provision that would have revoked the tax-exempt status of professional sports leagues. 

Private Foundations 

A proposal to permit a private foundation to own an independent for-profit business without violating the excess business holdings rule was deleted.

Colleges and Universities 

The bill still proposes a 1.4 percent excise tax on endowment income of certain private colleges or universities with at least 500 students. However, the tax would apply only to those with net investment assets of $500,000 or more per full-time student, as opposed to the $250,000 threshold in the Chairman’s Mark. Assets of a related entity that the educational institution controls or that is its supporting organization would be counted in the total, while assets of any other related organization would not be included unless they are intended or available for the educational institution.

Private School Expenses 

An entirely new provision would allow funds from 529 accounts to be used for costs of elementary and secondary schools, including home schooling, up to $10,000 per year.

Next Steps

The Senate and House will now convene a conference committee to try to iron out the many points at which their versions of tax reform diverge. For a discussion of the differences affecting tax-exempt organizations, see McGuireWoods’ legal alert “Tax Cuts and Jobs Act: A Comparison of Key Provisions for Tax-Exempt Organizations.”

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