The House Ways and Means Committee have released its first bill of the “Tax Cuts and Jobs Act.” There is still a long road until there is an actual bill passed by Congress. The bill still requires a vote in the House. The Senate then will attempt to pass a similar bill. Once both bills are passed, it will need to go through a process known as reconciliation where the House and Senate create a joint bill that will go to the President’s desk for signature.
At the organizational level, the proposed changes are pretty bare. The proposed changes clarify a rule about unrelated business income tax treatment of entities treated as exempt from taxation under IRC 501(a). The proposed changes also delete the phrase “from research” in IRC 512(b)(9) relating to excluding research income limited to publically available research and replacing the phase with “from such research.”
The major change comes in the form of a new excise tax applied to private colleges and universities. The proposed bill will impose a 1.4% excise tax on net investment income against any private university or college that has more than 500 students whose prior year assets that are unrelated to the organization’s exempt purpose have a prior year fair market value greater than $100,000 per student of the institution. This tax will then really impact colleges and universities with very large endowment funds. For example, a university with 500 students would need an endowment fund of over $50,000,000.
While we still may be a ways out of a final bill, PBMares will keep everyone in the not-for-profit world apprised of any changes that will affect them.