Joint Committee Scores Tax Reform Proposals

• Published date: 01 January 2018
• DOI: http://doi.org/10.1002/npc.30414
• Date: 01 January 2018

Bruce R. Hopkins’ NONPROFIT COUNSEL

3

January 2018

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonprofit Counsel DOI:10.1002/npc

benefit, unless the organization’s participation in

the transaction is not willful and is due to rea-

sonable cause (proposed IRC § 4958(a)(3); Act §

13705(a)). This tax would not be imposed if the

organization establishes that minimum standards

of due diligence (see next item) were met or estab-

lishes that other reasonable procedures were used

to ensure that an excess benefit was not provided.

• The rebuttable presumption of reasonableness

would be eliminated. Instead, procedures would

be formulated that establish that an organization

has performed minimum standards of due dili-

gence (essentially the same as those that pertain in

connection with the presumption) with respect to

a transaction or other arrangement involving a dis-

qualified person (proposed IRC § 4958(d)(3); Act §

13705(b)). (See the article beginning on p.8.)

• The rule by which an organization manager’s par-

ticipation in a transaction ordinarily is not know-

ing participation for purposes of the intermediate

sanctions rules if the manager relied on profes-

sional advice would be eliminated (proposed IRC §

4958(g); Act § 13705(c)).

• The definition of disqualified person, for purposes

of the intermediate sanctions rules, would be

expanded to encompass investment advisors and

athletic coaches at private educational institutions

(proposed IRC § 4958(f)(1)(G), proposed revision

of IRC § 4958(f)(8)(B); Act § 13705(d)).

• The intermediate sanctions rules would become

applicable to labor organizations (IRC § 501(c)

(5) entities) and business leagues (IRC§ 501(c)(6)

entities) (proposed revision of IRC § 4958(e)(1);

Act§13705(e)).

• The top corporate rate for unrelated business

taxable income would be reduced to 20 per-

cent, beginning in 2019 (IRC § 511(a)(1), (2)(A);

Act § 13001).

• Tax exemption for professional sports leagues (in

IRC § 501(c)(6)) would be repealed (Act § 13704).

• The contribution limitation as to ABLE accounts

would be increased under certain circumstances

and a designated beneficiary of an ABLE account

would be allowed to claim the saver’s credit for

contributions made to the account, with these

provisions sunsetting after 2025 (proposed revision

of IRC § 529A(b)(2)(B), proposed IRC § 529A(b)(7),

proposed revision of IRC § 25B(d)(1); Act § 11024).

• Amounts from 529 accounts would be able to be

rolled over to an ABLE account, without penalty,

under certain circumstances, with that provision

sunsetting after 2025 (proposed revision of IRC §

529(c)(3)(C); Act § 11025).

• A proposal to clarify that an unborn child qualifies

as a designated beneficiary of a qualified tuition

program was removed from the bill.

Income Tax Charitable Deduction

Law Changes

The proposed alterations of and addition to the fed-

eral law concerning the income tax charitable deduction

are the following:

• The annual limit on cash contributions to the

preferred category of charities (IRC § 170(b)(1)

(A)) would be increased to 60 percent (proposed

IRC § 170(b)(1)(G); Act § 11023).

• The deduction for amounts paid in exchange for col-

lege athletic event seating rights (IRC § 170 (l)) would

be repealed (Act § 13707).

• The exception to the contemporary written acknowl-

edgment requirement (IRC § 170(f)(8)(D)) would be

repealed (Act § 13708).

• The charitable contribution deduction of an electing

small business trust would be determined by the rules

applicable to individuals, rather than those applicable

to trusts (proposed IRC § 641(c)(2)(E); Act § 13542).

• The partnership rules would be modified to clarify

that a partner’s distributive share of loss takes into

account the partner’s distributive share of charitable

contributions for purposes of the basis limitation on

partner losses (proposed revision of IRC § 704(d);

Act § 13503). ◆

JOINT COMMITTEE SCORES

TAX REFORM PROPOSALS

The Joint Committee on Taxation published its analy-

sis of the estimated revenue effects of the two versions

of the proposed Tax Cuts and Jobs Act (summarized in

last month’s issue). The analysis of the House bill is dated

November 9 (JCX-54-17); the analysis of the Senate

Finance Committee bill is dated November 14 (JCX-57-17).

Here is the relevant scoring of projected revenue gains

(2018–2027):

• 20 percent excise tax on exempt organizations

paying executive compensation in excess of $1 mil-

lion—$3.6 billion.

• Subjection of exempt organizations’ unrelated busi-

ness to a “bucketing” rule—$3.2 billion.

• Excise tax on the investment income of “wealthy”

private colleges and universities—$2.5 billion.

• Taxation of sale or licensing of name and logo royal-

ties—$2.0 billion.

• Repeal of deduction in connection with college ath-

letic event seating rights—$1.9 billion.

• Clarification of unrelated business income tax treat-

ment of state and local retirement plans—$1.1 billion.

• Exclusion of research income limited to publicly avail-

able research—$0.7 billion.

• Simplification of excise tax on private foundations’

investment income—$0.5 billion.