Bill Introduced to Repeal Unrelated Business Income Tax Rules for Exempt Organizations

On June 7, Rep. K. Michael Conaway, R-Texas, introduced H.R. 6037, the Nonprofits Support Act that seeks to repeal two unrelated business income provisions enacted as part of the 2017 Tax Cuts and Jobs Act (TCJA). The bill consists of two sections: the first would repeal the requirement that unrelated business income must be calculated separately for each trade or business activity, while the second would repeal the increase of unrelated business income by certain disallowed fringe benefits. The bill has been referred to the House Committee on Ways and Means.

Separate Computation of Income

The U.S. tax reform of 2017 resulted in changes for tax-exempt organizations that affect how much an organization engaged in unrelated business activities must pay in taxes, and possibly how the organization will be required to keep track of those activities.

Under the TCJA, a new section was added to the Internal Revenue Code that requires exempt organizations that have unrelated business income to report each activity separately. This means the organization will no longer be permitted to offset income from one activity with expenses of another, a change that will result in many organizations now having a tax liability for those activities generating net income.

The IRS has not yet provided guidance as to how to identify a separate trade or business; the Nonprofits Support Act would repeal the requirement to separately compute income for each trade or business.

Inclusion of Disallowed Fringe Benefits

The TCJA also added a provision that requires exempt organizations to treat certain fringe benefits like employer-provided parking and transit passes as unrelated business taxable income unless the organization treats the benefit as taxable compensation to the employee. The Nonprofits Support Act would also repeal this requirement.

Schneider Downs continues to monitor current developments concerning tax issues affecting exempt organizations. Please contact your Schneider Downs representative with any questions.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2021 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Tax, Tax Reform BY Kirk Mitchell
Tax Reform 2021: Build Back Better Act Update as of Wednesday September 15, 2021
IRS Announces New Update Regarding Streamlined Filing Compliance Procedures and Section 965
New Per Diem Rates Announced for the Transportation Industry – Can Your Company Use This as a Driver Retention Tool?
Tax-Exempt Organizations Must Notify IRS of Responsible Party Changes
OMB Releases 2021 Compliance Supplement
Looking for Clarity from the IRS Regarding Foreign Activities? Be Careful What You Wish For!
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×