Push back on Treasury nondisclosure rule and new parking tax guidance

NONPROFIT NEWS

With the implementation of many provisions of the Tax Cuts and Jobs Act, the drama surrounding the Donald J. Trump Foundation, the continued attention paid to donor-advised funds, and ongoing attempts to modify or altogether repeal the prohibition on 501(c)(3) campaign intervention activity, it's been a big year for tax-exempt organization legal updates. As 2018 comes to close, here are a few final updates on the newly released guidance provided by the Treasury Department regarding the new tax on qualified transportation fringe benefits and efforts in Congress to undo the recent action by the Treasury Department and the IRS to cease requiring many non-501(c)(3) tax-exempt organizations to file personally identifiable information about their donors in the Schedule B to their Forms 990. It will be interesting to see what 2019 brings!

Guidance on New Transportation Benefits Tax

As has been widely discussed, the Tax Cuts and Jobs Act signed into law at the end of 2017 included a number of provisions with significant impact on nonprofits and the sector more broadly. One of those provisions is the newly added Section 512(a)(7). Section 512(a)(7) increases the unrelated business taxable income of a subject exempt organization by certain amounts paid or incurred by the organization to provide qualified transportation fringe benefits or on-premises athletic facilities to its employees. Qualified transportation fringe benefits include transit passes, transportation provided between an employee's home and work in a commuter highway vehicle, and any qualified parking, which is parking provided to an employee on or near the work premises or near another location from which the employee commutes to work.

The new Section 512(a)(7) has led to much confusion, particularly as it will subject numerous exempt organizations not currently earning any unrelated business income to the unrelated business income tax (UBIT), requiring them to compute their taxable income and file the Form 990-T for the first time. Because the new provision will require many religious institutions to file an annual return (Form 990-T) and report unrelated business taxable income for the first time, this provision has often been referred to as the "Church Tax".

On Dec. 10, the Treasury Department issued much needed interim guidance (in Notices 2018-99 and 2018-100) on how exempt organizations should compute their unrelated business taxable income related to subject parking benefits. The Treasury Department also provided relief from penalties for some tax-exempt organizations subject to the new rules that were not required to file a Form 990-T in their last filing season and have underpaid estimated tax payments thus far absent clear guidance on the new rules. The Treasury guidance states that subject entities may use any reasonable method for calculating their unrelated business taxable income until further guidance is issued, and also provides a safe harbor method that may be used, depending on the type of qualified transportation fringe benefit provided by the employer and whether the employer provides the benefit directly or pays a third party to do so.

There is also a $1,000 threshold that applies and exempt organizations that do not exceed $1,000 of unrelated business taxable income, including under Section 512(a)(7), are not required to report any unrelated business income or pay the applicable tax for the respective reporting year. For those organizations with unrelated business taxable income that exceeds $1,000, there is a $1,000 specific deduction that may be applied, including to unrelated business taxable income calculated under Section 512(a)(7).

Legislation to Overturn Recent Dark Money Nondisclosure Rule

As I wrote about several months ago, the IRS and Treasury announced in July through Revenue Procedure 2018-39 that, beginning in 2019, many exempt organizations other than 501(c)(3)s (including those exempt under Section 501(c)(4)) will no longer be required to file personally identifiable information about their donors with their Forms 990. Currently, Schedule B to the Form 990 requires exempt organization filers to disclose the identities of donors who gave more than $5,000 to the reporting organization in a given tax year, and to disclose the total amounts contributed by such donors. Surprisingly (at least to me), the Senate voted on Dec. 12 to repudiate the Revenue Procedure by a vote of 50 to 49.

Senator Ron Wyden (D-OR), who introduced the resolution along with Senator Jon Tester (D-MT), stated from the Senate floor in advance of the vote that "The Trump administration's dark money rule made it easier for foreigners and special interests to corrupt and interfere in our elections. ... The rule change pushed through by the Trump administration this summer is all about darkness. It's all about secrecy. It's all about giving the well-connected even more of a say in how our government works." Unsurprisingly, Senators Mitch McConnell (R-KY) and Orrin Hatch (R-UT) expressed different opinions about the new rules set forth in the Revenue Procedure. Senator McConnell stated in remarks delivered in advance of the vote that the Senate needed to reject the repudiation attempt and "stand up for privacy, stand up for the First Amendment, and reject the Democrats' resolution. The question at hand is whether the IRS should have special power to demand that certain nonprofit organizations hand over lists of their contributors." He went on to boldly state that the legislation "would do more to undermine our constitutional freedoms and chill their exercise than any other bill I can think of in recent memory."

The day after the Senate vote, Congressman David Price (D-NC) introduced legislation in the House mirroring the resolution that passed in the Senate. In introducing the legislation, Congressman Price stated, "At a time when our elections are plagued by unlimited corporate spending, anonymous donors, and illegal foreign meddling, the Trump administration's decision to obscure millions in dark campaign money weakens our already failing campaign finance system and diminishes the power of voters." With the change in party control of the House, it will be interesting to see if there will be enough votes to get the legislation through the House in the new year, and, if so, whether Trump will exercise his veto power.