Bipartisan legislation to repeal a 21-percent tax on the value of fringe benefits, such as free parking or mass transit assistance, has been introduced in both the U.S. House of Representatives and the U.S. Senate. The provision was part of the 2017 Tax Cuts and Jobs Act.
James Lankford (R-Okla.) and Chris Coons (D-Del.) introduced the legislation in the U.S. Senate. Mark Walker (R-N.C.) and Tom Suozzi (D-N.Y.) introduced the companion bill in the House of Representatives. U.S. Representatives Randy Weber (R-Texas), Doug Lamborn (R-Colo.), Jeff Duncan (R-S.C.), Matt Gaetz (R-Fla.), and Jody Hice (R-Ga.) are also co-sponsors on the House of Representatives version.
A copy of the House version is available here.
The Unrelated Business Income Tax (UBIT) is proving to be a burden for tax-exempt groups, including churches and small charities that have little or no experience dealing with the Internal Revenue Service (IRS) and insufficient guidance on how to calculate the value of parking and other benefits provided to their employees, according to Lauren Precker, social communications and strategy manager at ASAE: The Center for Association Leadership.
A new report commissioned by Independent Sector (IS) shows that the new tax will annually divert an average of $12,000 from each nonprofit’s mission. About 10 percent of nonprofits are considering dropping transportation and parking benefits entirely, although these employer-provided benefits are mandated in some metropolitan areas like Washington, D.C., New York, and San Francisco.
“These (UBIT) provisions divert precious funds away from missions and the communities who need it most,” said Daniel J. Cardinali, president and CEO of IS. “We heard from nonprofit leaders who were concerned about the impact of these taxes and confused about how they were going to be implemented. We commissioned this research to educate the nonprofit community and urge Congress to quickly repeal these two provisions.”
Momentum for repealing the tax on nonprofit employee benefits is growing on both sides of the aisle, and “ASAE is hopeful Congress will move repeal legislation this session so that nothing distracts associations and other nonprofits from their core mission. Bipartisan support is growing to repeal this onerous tax on nonprofit employee benefits,” said ASAE President and CEO John Graham, FASAE, CAE.
“Churches and charities serve on the frontline of our battle against the generational cycles of poverty and the traps of government dependence,” Walker said via a statement. “Washington should ensure their work in our communities is not restricted by unnecessary taxes and strenuous compliance processes. The LIFT for Charities Act will maintain that non-profits and places of worship remain uninhibited by federal burdens.”
“Last year’s tax bill placed a new tax on religious institutions and nonprofits. That’s simply wrongheaded.” Suozzi said via the same statement. “That is why I am proud to co-lead this bipartisan bill with my colleague so that nonprofits and places of worship can continue their important work without an unnecessary financial burden.”
Examples of employee benefits that would be subject to taxation if the LIFT for Charities Act is not adopted include parking spots, provided meals, and transportation benefits. For example, many Goodwill centers offer transportation to employees.
An additional impediment to nonprofits without the passage of the LIFT for Charities Act is compliance burdens and fees. These organizations traditionally have not been required to file returns with the Internal Revenue Service. Without the passage of this legislation, these organizations will spend millions collectively on IRS compliance, further diminishing the resources they are able to spend on serving communities.
Randy Weber (R-Texas), Doug Lamborn (R-Colo.), Jeff Duncan (R-S.C.), Matt Gaetz (R-Fla.), and Jody Hice (R-Ga.) are also co-sponsors on this bill in the House of Representatives.
Said Tim Delaney, president and chief executive officer of the National Council of Nonprofits, “Taxing tax-exempts is the very definition of an oxymoron. But worse, this tax is also illogical, unworkable, and unfair. Almost everyone in Congress acknowledges it was a mistake, an error, and this legislation shows there is bipartisan support for its repeal. Hundreds of thousands of nonprofits, houses of worship, and foundations will be forced to divert money away from their missions to make tax payments soon unless this tax is repealed – retroactively — in the coming weeks.”