GEORGE JOHNSON & COMPANY
Dear Clients and Friends,
Welcome to the Spring issue of the GJC Advisor.
Here are the top six tax reform-related issues nonprofits will need to address:
1. Internal Revenue Code (IRC) Section 512(a)(7): Certain qualified transportation fringe benefits, including those relating to parking garages, must be reported as unrelated business income (UBI).
2. IRC Section 4960: Tax on excess tax-exempt organization executive compensation.
This provision is effective for tax years beginning after Dec. 31, 2017. Net operating losses arising in tax years beginning before Jan. 1, 2018 are not subject to the rule and may be used to offset income from any trade or business to the extent of 80 percent of the income from the trade or business. Any amount so limited may be carried forward to future years.
Nevertheless, many questions remain regarding this provision:
- Will each investment in a partnership (a so-called “alternative investment”) be considered a separate trade or business, or can the alternative investments be aggregated, with each one’s income and losses offsetting the income and losses of another?
- Will all rental activity be aggregated as one trade or business?
- Will management of other associations be treated as one management activity or multiple businesses?
4. IRC Section 4968: The endowment tax can apply to other entities with schools.
The rationale behind this provision is to tax college and university endowments in the same manner as private foundations. In fact, net investment income is defined by the private foundation provisions of IRC 4940 and generally includes interest, dividends, rents, royalties, and capital gain net income, and is reduced by expenses incurred to earn this income. In reaching the asset threshold, the assets of related organizations are considered.
Many initially thought the provision would only impact between 30 and 60 colleges and universities. However, large healthcare systems and other exempt groups may have nursing schools or other schools that could be impacted when the assets of the related entities are considered. The rules are effective for tax years beginning after Dec. 31, 2017, so there may be opportunities to make the educational institution independent of the other entities so that the asset test is not met.
5. IRC Section 162: New lobbying rule.
Nevertheless, this change does not impact section 501(c)(3) organizations. This is because the definition of lobbying-for purposes of whether a substantial part of an organization’s activities includes influencing legislation-already included attempts to influence the actions of any local council or similar governing body.
6. Various new tax provisions will change charitable giving.
Thus, it’s important that organizations stay tuned for guidance on the new and upcoming rules.
Join GJC in welcoming our new Senior Tax Accountant, Danielle Moncure.
Coming together is a beginning.
CPA Senior Tax Accountant
It has always been an important part of GJC’s social responsibility to continue our strong commitment to community service. We encourage our team members to volunteer and participate in events that serve a positive purpose within the community. Each year, our largest volunteer event honors the life and legacy of Dr. Martin Luther King, Jr.
In January, our team volunteered at the Detroit Capuchin Soup Kitchen for the meal program. Since 1929, the Capuchin Soup Kitchen has served Metro Detroit by providing food, clothing, and human development programs to the people.
The GJC Team at Capuchin Soup Kitchen, Detroit