As expected, President Trump signed into law H.R. 1865 (The Further Consolidated Appropriations Act, 2020) on Friday, December 20, 2019.
The bill was primarily designed as a government funding bill. Like most bills, it contained various “tag-along” provisions not associated with federal funding. Two of the provisions signed into law have a significant impact on non-profit organizations.
Parking and Transit Pass Tax Repeal
H.R. 1865, as signed into law, repealed Code section 512(a)(7) that taxed qualified transportation fringe benefits, which included expenses related to transit passes and parking facilities associated with qualified parking. The repeal is retroactive to the date of enactment, December 22, 2017. This means all taxes already paid will be refunded to the charity. There are three aspects to the repeal that will have an immediate impact on non-profits:
- Organizations will have to file an amended Form 990-T, Exempt Organization Business Income Tax Return, for tax previously paid;
- Organizations, currently on extension, will have to file Form 990-T to claim a refund for estimated payments made; and,
- Since the bill is retroactive to the date of enactment, penalties, and interest related to previous filings will also have to be addressed.
The IRS and the Treasury appear to be having staffing problems, so it should be interesting to see how they are going to timely process returns without incurring interest on the refunds. Additionally, this is occurring during their peak filing season.
Private Foundation Excise Tax Simplification
Over the past seven years, there has been a bill introduced to reduce the excise tax paid by private foundations on their investment income. There has historically been a split level of tax pursuant to Code section 4940 of either 2% or 1% since the original enactment in 1974. The tax was originally initiated by the Treasury to cover the administrative costs associated with monitoring private foundation activities for abuses associated with prior filings.
H.R. 1865 (Sec. 206) changed the excise tax rate on investment income under Code section 4940 to a single rate of 1.39%, which technically amounts to a blended rate between the 2% and 1% rates. This will make year-end planning much easier for most foundations. The new rate goes into effect for tax years beginning after the date of enactment. In most cases, this would be for the year beginning January 1, 2020.
Compliments of Marks Paneth, a Member of the EACCNY