Alerts & Updates
Sept. 21, 2018 – The U.S. Treasury Department and the Internal Revenue Service announced draft regulations designed to change how the federal government will treat donations to charitable organizations that generate state or local tax credits. The proposal would address New York’s new tax laws that seek to convert some state and local tax (SALT) payments (that are capped at $10,000 under the 2017 federal tax law) into uncapped charitable deductions.
The proposed regulations, if ultimately adopted after a 45-day public comment period and regulatory review process, would require taxpayers to treat the value of tax credits like other benefits received when making a charitable donation, such as subtracting the value or cost of a meal at a charity gala from the charitable deduction. As explained in the Treasury Department news release, the value of a tax credit would have to be deducted from a taxpayer’s deduction. The proposal does not apply to dollar-for-dollar state tax deductions for donations to charitable nonprofits, nor to programs that generate a tax credit of 15 percent or less.
The proposed rule does not make a distinction between government-run nonprofits and public charities; donations to either that generate tax credits would have to be reduced by the value of the credit. This would be a change from prior law that permitted full deduction of charitable donations that also allowed taxpayers to apply a tax credit based on that donation to reduce state taxes. This may impact pre-existing state tax-credit programs, although there is much debate about whether and how. The ultimate impact on older tax credit programs likely will be resolved during the regulatory process.
The draft regulations officially published today propose changing how state tax credit programs are treated for charitable tax deduction purposed beginning on August 27. Before the regulations are adopted as final rules, Treasury and the IRS will give consideration to public comments submitted by October 8, 2018. A public hearing has been scheduled for November 5. Comments should be submitted electronically, via the Federal eRulemaking Portal (indicate IRS and REG-112176-18). See tips for submitting public comments. (From the National Council of Nonprofits.)
Doing the Math
If a state provides a 70% tax credit for donations to eligible entities (whether government run or charitable nonprofit) the taxpayer makes a $1,000 donation to an eligible entity. The taxpayer receives a $700 state tax credit.
|State Credit||Federal Deduction|
|Effect of Proposed Rule|
|State Credit||Federal Deduction|
The taxpayer must reduce the $1,000 contribution by the $700 state tax credit, leaving an allowable contribution deduction of $300 on the taxpayer's federal income tax return.
Source: Proposed Regulations, Example 1, page 34.
Sept. 21, 2018 – The Treasury Department and Internal Revenue Service have issued a Request for Comments on proposed interim and transition rules (Notice 2018-67) for interpreting they way that nonprofits calculate UBIT payments. The new Section 512(a)(6) of the Internal Revenue Code changes the way nonprofits calculate UBIT; instead of aggregating all of their profits and losses from unrelated business activities, nonprofits must now "silo" their revenues and expenses for each "separate" "trade or business" and pay UBIT on each. Neither of the quoted terms is defined in the law. The proposed rules released last week provide some clear answers and instructions on how to comply with the law immediately, but many questions remain that must be resolved during the formal rulemaking process.
The Notice expressly provides that starting on January 1, 2018 (when the tax-law provision took effect) until issuance of final regulations (probably in 2019) nonprofits may rely on a reasonable, good faith interpretation of the UBIT statutes in determining whether their organizations have more than one "trade or business." Specifically, the IRS suggested using the North American Industry Classification System (NAICS) 6-digit codes as a reasonable, good faith interpretation. Practically, this means that nonprofits can combine the revenue and expenses from all advertising activities (e.g. online advertising and ads in a variety of print publications) into one category (NAICS code 541800), since these would all be within the same NAICS code. But the NAICS code may not provide clarity for some or many other sources of revenue and expenses. For example, the NAICS has multiple codes relating to rentals. Consequently, rental income and expenses may need to be divided or grouped in other ways, meaning it’s possible that expenses for some types of rentals may not be used to offset income from other types.
A separate question arises when a nonprofit has an ownership interest in a partnership that engages in many “trades or businesses.” For now, the IRS will treat revenue from a partnership as a single "trade or business" if one of two tests is satisfied: the de minimis test (ownership interest of no more than 2%) or the control test (no more than 20% ownership interest and no control over the operations of the business). Revenue from other forms of partnership interests that fail to meet these tests can still be treated as a single "trade or business" during the one-year transition period that runs from August 21, 2018 to August 21, 2019.
The notice made only a passing reference the UBIT on commuter benefits, found in Section 512(a)(7). The government has given no indication if or when it will delay implementation of the controversial new tax (effective January 1, 2018) or provide guidance to the hundreds of thousands of nonprofits affected by the tax change.
YOU CAN TAKE ACTION
Go to the IRS public comment form and insist that Treasury and the IRS delay implementing the new UBIT subsections until one year after Final Rules are promulgated. (Fill in "Form 990-T" in the line: Form/Instruction/Publication Number.) Learn more.
The Notice provides a way for nonprofits to comply with the new law and the opportunity to recommend changes to the proposed rule that fix any shortcomings. The first step for any nonprofit potentially affected by this tax is to review the NAICS codes and compare your unrelated business revenue streams to determine which categories apply neatly, and which codes don’t make sense. Treasury and the IRS need to know what works and what parts of their proposed rule must be revised. You can make recommendations by submitting public comments via email to [email protected] with reference to Notice 2018-67 in the subject line. The public comment period is open through December 3, 2018. See tips for submitting public comments. (From the National Council of Nonprofits.)
Aug. 13, 2018 – As a result of the new federal tax law, nonprofit employers must now pay Unrelated Business Income Tax (UBIT) on commuter benefits, including Buffalo NFTA Metro Pass, NYC Metrocard, Rochester RTS Pass, or employee parking. Because of your advocacy, the New York legislature recently passed S8831 and A11051 to decouple the federal and state tax law to eliminate the New York State tax. The law is now awaiting Governor Cuomo’s signature. We need your help! Please do two things:
- Tell Governor Cuomo that signing the bill is important to your nonprofit using the script below.
- Fill out this survey to tell us about the impact of this tax on your organization so that we can better advocate for you.
What to say to Governor Cuomo when you call or email his office:
As Governor, you have championed the fight in New York State against the disproportionately harmful effects on federal tax reform on New Yorkers. Please sign S8831/A11051 into law to prevent nonprofits from being taxed on commuter benefits – and to protect this benefit for nonprofit workers. For my organization that would be a yearly increase of $([total amount of pre-tax compensation your organization’s employees direct to commuter benefits each month] * 12 * .09) in state taxes. My nonprofit’s resources should be used for our mission. New York State should not impose this new tax on commuter benefits. By signing this bill, you continue to protect New Yorkers against the adverse consequences of federal tax reform, while also encouraging nonprofits to continue to invest in the services they provide to communities throughout the state. I strongly urge you to sign this important legislation into law.
Thank you for helping in this critical effort! Together, we can get this done.
June 21, 2018 – Thanks to your great advocacy, the nonprofit sector has had a great – and cost-saving – victory! The bills to fix the unintended consequences of an additional 9% unrelated business income tax (UBIT) on commuter benefits passed this week. Because of your calls, letters, memos, and meetings, the State legislature passed legislation that decouples the federal and state tax code so that New York will not charge nonprofits this 9% tax.
The federal Tax Cut and Jobs Act of 2017 imposes federal Unrelated Business Income Tax (UBIT) on any amount a nonprofit employer has “paid or incurred” for commuter benefits such as a Buffalo NFTA Metro Pass, NYC Metrocard, Rochester RTS Pass, or employee parking. New York law imposes a state UBIT whenever federal law does so. As a result, New York would have automatically followed the new federal statute, imposing an additional 9% state tax effective January 1, 2018 on top of the 21% federal tax. This is a significant – and unbudgeted – burden that will result in the diversion of services to the community. This legislation fixes the state portion of this problem and relieves nonprofits of that additional 9% tax burden!
We now need the Governor to sign the bill, and in the next weeks and months, we'll need your help to send the message that nonprofits need this legislation. But now, we congratulate your great work, and thank you for all that you do every day.
TAKE ACTION to fix the Commuter Benefits Tax – Contact Your State Legislators to Pass Bill S.88831/A.11051!
June 11, 2018 – A recent memo from NPCC and some members of a larger coalition calls for legislation to pass bill S.88831. We need your help in making this happen. We need to pass this legislation in this session – so time is of the essence! Use the coalition's call script and sample letter to contact your state legislators today. If you live or work in these Senator’s districts, please make sure to reach out:
- Majority Leader John Flanagan: [email protected]; 518-455-2071
- Senator John DeFrancisco: [email protected]; 518-455-3511
- Senator Martin Golden: [email protected]; 518-455-2730
- Senator Andrew Lanza: [email protected], 518-455-3215
- Senator Joseph Robach: [email protected]; 518-455-2909
- Senator James Seward: [email protected]; 518-455-3131
June 6, 2018 - NPCC is part of a coalition that is advocating with New York State to reform our state tax law and reduce the cost to nonprofits by decoupling the federal and state law, therefore keeping New York from charging the 9% tax on these benefits. Recent legislation was introduced into the New York State Senate, and NPCC and some of the coalition members wrote a memo in support.
For background, as a result of the new federal tax law, nonprofit employers must now pay Unrelated Business Income Tax (UBIT) on commuter benefits, including Metrocards and employee parking. New York law imposes a state UBIT whenever federal law does. As a result, New York will automatically follow the new federal statute, imposing an additional 9% tax. If the employer subsidizes the maximum allowable benefit of $260/month, it will owe state tax of $280 for each employee each year. For an organization of 40 employees, that totals more than $11,000 per year. With more than 1.3 million nonprofit employees statewide3, the tax could divert millions of dollars from the nonprofit sector each year. For more information, see this FAQ.
Please call your legislators to tell them to support this bill.
May 29, 2018 - As a result of the new federal tax law, nonprofit employers must now pay Unrelated Business Income Tax (UBIT) on commuter benefits, including Buffalo NFTA Metro Pass, NYC Metrocard, Rochester RTS Pass, or employee parking. New York law imposes a state UBIT whenever federal law does. As a result, New York will automatically follow the new federal statute, imposing an additional 9% tax. This means that any employer with 40 employees, each of whom receives $150 per month in pre-tax commuter benefits, could owe New York State $6,480 in new taxes each year. For more information, see this FAQ .
NPCC is part of a coalition that is advocating with New York State to reform our state tax law and reduce the cost to nonprofits by decoupling the federal and state law, therefore keeping New York from charging the 9% tax on these benefits.
May 11, 2018 – In case you missed it, the Lawyers Alliance For New York published a fact sheet about the commuter benefits tax we shared in an NPCC email about the tax, and how NPCC and the Lawyers Alliance for New York, as a part of a larger coalition, are advocating with New York State tax to reform our state tax law to reduce the cost to nonprofits.
For more information about the commuter benefits tax, read the fact sheet here.
May 1, 2018 – Read here for NPCC’s letter to Treasury and IRS demanding an immediate delay implementing the two new UBIT subsections (taxes on fringe benefits and taxes on separate “trade or business”) of the new federal tax law, retroactive to January 1, 2018, until one year after Final Rules are promulgated to provide both the necessary official guidance for compliance and a reasonable transition period for nonprofits to develop the necessary record-keeping systems.
April 19, 2018 - As NPCC told you in our March e-newsletter, as a result of the new federal tax law, nonprofit employers must now pay Unrelated Business Tax Income (UBIT) on some fringe benefits, including on Metrocards and other “qualified transportation fringe benefits” (also known as commuter benefits). This will increase a nonprofit organization’s expenses. For example, an employer with 40 employees, where each employee enjoys $150 per month in pre-tax commuter benefits, that employer could be taxed $21,600 ($150x12x40x30%), of which $15,1202 would go to the federal government and $6,480 would go to New York State.
March 12, 2018 – Congressional leaders are, right now, writing the bill to fund the government through the rest of the current fiscal year. This "must pass" bill is attracting many controversial issues - like anti-Johnson Amendment language - that would not pass as free-standing bills. Congressional leaders are negotiating today and over the next few days deciding what will go into the bill. House Majority Leader Kevin McCarthy, the person who has the job of setting the House floor schedule, said that he is aiming to vote on the omnibus spending bill this week, as in March 15 or 16. We anticipate one of the riders will be an attempt to repeal or weaken the Johnson Amendment, the longstanding law that protects 501(c)(3) organizations from partisan political endorsements and activities. The Johnson Amendment protections ensure that nonprofits are nonpartisan problem solvers in their communities not political organizations. Today the Nonprofit Quarterly published New Threat in Congress to Politicize Nonprofits and Foundations, an article about the threat to repeal the Johnson Amendment and what that would mean to all of us.
December 18, 2017 – Thanks to NPCC members, and nonprofits across the city, state and country, the reconciled Congressional tax bill does NOT include a provision to repeal the Johnson Amendment nonpartisan protections for nonprofits. You did it!! Congratulations and THANK YOU. Of course, there is more left the do. The rest of the tax bill is still so harmful for our nonprofits and the communities we serve. And while Senators Schumer and Gillibrand are on record as opposing the bill, as are many of New York’s House members, some House members intend to support this harmful bill. Click here to read more.
November 15, 2017 – The U.S. House of Representatives is scheduled to vote THIS WEEK on the Tax Cuts & Jobs Act (H.R. 1). The U.S. Senate Finance Committee is discussing the Senate tax bill this week. These bills differ in important ways – read a side-by-side comparison here - but both hurt nonprofits. Yesterday, the Senate added a provision that would repeal the individual mandate for the Affordable Care Act.
Both bills reduce charitable giving; the House bill politicizes nonprofits; the Senate bill threatens the Affordable Care Act. Both bills will fundamentally change our ability to work with our communities. Congress is acting now – so we have to act now, too. Click here to read more.
October 14, 2017 – NPCC signed on to the comments of the Lawyers Alliance for New York, along with the New York Legal Services Coalition, regarding the Joint Commission on Public Ethics (JCOPE)’s proposed comprehensive lobbying regulations (19 NYCRR Part 943). JCOPE’s proposed regulations, if adopted, would affect lobbying definitions and compliance provisions.
September 21, 2017 – Last year at this time, nonprofits were scrambling to comply with pending overtime regulations that would have doubled the minimum salary threshold for determining who is considered a white-collar worker and exempt from overtime payments. A federal judge recently struck down the Obama Administration overtime final rule, and the U.S. Department of Labor sought comments to its Request for Information (RFI) about future overtime regulations. NPCC surveyed our members and submitted these comments: click here.
Letter To Congress: Vote to Maintain the Protections of the Johnson Amendment and Sensible Tax Reform.
July 24, 2017 – I write, on behalf of the nearly 1,500 nonprofit members that the Nonprofit Coordinating Committee of New York represents, to urge you to protect the nonprofit sector by voting to maintain the protections of the Johnson Amendment and for sensible tax reform that encourages charitable giving. NPCC helps New York nonprofits thrive to build better communities for all. As a 501(c)(3) nonprofit member organization and advocate since 1984, we support our nearly 1,500 members by encouraging strong, transparent, and informed management and by advocating for fair and reasonable nonprofit public policy. Click here to view full letter.
TAKE ACTION! Congress is politicizing nonprofits – We need five minutes of your time to stop them.
Last week, the U.S. House Appropriations Committee approved a funding bill that included an extraneous provision (rider) that essentially blocks enforcement of the Johnson Amendment against houses of worship and their auxiliary organizations. Certain charitable nonprofits would be able to endorse candidates for public office and divert charitable assets to political campaigns if a rider to a federal funding bill is approved by Congress in the coming weeks.
For 60+ years, the Johnson Amendment has prevented 501(c)(3) organizations from engaging in partisan, election-related activities and is seen by most in the nonprofit community as a valuable protection that keeps charitable nonprofits, religious institutions, and foundations focused on their missions rather than responding to outside pressures to divert their time, money, and other resources to engage in partisan electioneering. The broad nonprofit community opposes changes to the Johnson Amendment, as expressed by nearly one hundred religious denominations and organizations, more than 3,000 religious leaders, 89 percent of evangelical pastors, more than 5,000 charitable nonprofits, houses of worship, and foundations, and 72 percent of American voters.
The House of Representatives is expected to consider the appropriations bill this month and other legislation harmful to the Johnson Amendment and nonprofit nonpartisanship is pending in the Senate and House. Now is the time to act.
Letter To Congress: We call on you to Keep Nonprofits Nonpartisan.
April 17, 2017 – The Nonprofit Coordinating Committee of New York (NPCC) calls on you in the strongest possible terms to block any attempt to repeal or weaken the important provision in Section 501(c)(3) that protects charitable nonprofits, religious institutions, and foundations from the divisiveness and rancor of partisan politics that currently bedevils our country. Click here to view full letter.
TAKE ACTION! Keep Nonprofits Nonpartisan.
As we noted in our February e-Newsletter, the US House of Representatives and US Senate have introduced legislation to repeal the ban on partisan activity by 501(c)(3) nonprofits. This legislation would, in effect, allow 501(c)(3) nonprofits to become political organizations, which would turn nonprofits into political operatives. We think that nonprofits do their best work because they are nonpartisan and repealing this requirement is a threat to our work and our sector.
Nonprofits are safe spaces in our communities, designed to be above the political fray. Being nonpartisan allows us to focus on solving problems, helping our neighbors, and enriching our communities. Nonpartisan credibility is critical to the ability of 501(c)(3) organizations to work with elected officials of all parties at the local, state, and federal levels to address community needs. Keeping this protection in place is essential to nonprofit missions.
Lawyers Alliance, NPCC File Suit Objecting to New State Donor Disclosure Law
On Monday March 6, 2017 Lawyers Alliance for New York and the Nonprofit Coordinating Committee (NPCC) filed a lawsuit against the New York State Attorney General’s office challenging a law that unnecessarily discourages contributions to nonprofit organizations. The Governor wants to require charitable nonprofits to disclose their donors just because they work with certain advocacy groups – even when that work has nothing to do with lobbying. Nonprofits must be transparent and accountable, but this law is a solution in search of a problem. It’s too broad, won’t encourage the transparency it seeks, and is bad for the nonprofit sector.
Overtime Regulations in New York State In Effect as of December 31, 2016
As we reported in New York Nonprofits' October Issue, federal overtime regulations are currently on hold while the U.S. District Court in Texas moves forward with the case. However, with three days' notice, on December 28, 2016, New York State Department of Labor (NYSDOL) finalized its own overtime rules, increasing salaries for administrative and executive work and the number of workers who will qualify for overtime pay.
New Overtime Regulations ON HOLD
As you may have heard, a federal Judge has temporarily blocked the implementation of the new Overtime Final Rule, originally set to begin on December 1, 2016. In this case, the Judge found that the Department of Labor exceeded its authority in adding a salary test to the existing duties test when determining eligibility for overtime. Unless there is an emergency appeal, nonprofits should expect that the Rule will not go into effect as originally scheduled; however it is expected that the Department of Labor will appeal and that this appeal will be decided in the coming weeks or months.
User Fee for 501(c)(3) Applications Lowered
Effective July 1st, 2016 the user fee to process FORM 1023-EZ (application for recognition of exemption under 501(c)(3) status) is lowered from $400 to $275.
Facts About the New Overtime Rule and What You Need To Know
President Obama and Secretary Perez announced that the Department of Labor’s final rule on overtime under the Fair Labor Standards Act will automatically extend overtime pay eligibility to 4.2 million workers. The rule will entitle most salaried white collar workers earning less than $913 a week ($47,476 a year) to overtime pay.
Final D.O.L. Overtime Rule To Be Published May 18th
The U.S. Department of Labor has recently proposed regulatory changes that could dramatically expand the population of employees entitled to receive overtime pay.
OMB Guidance: Know your Rights
Each nonprofit needs to learn its rights and responsibilities under the Uniform Guidance and take positive steps to protect those rights. This document identifies the major changes in the Uniform Guidance related to cost allocation rules and payment of indirect costs.
HSC issues new report: Human Services Council’s New York Nonprofits in the Aftermath of FEGS: A Call to Action
Disclosures to Donors
NYS Assembly introduced bill A-3394 which would require charities disclose to donors in writing after donation as to how their donation was allocated – what portion went to administration and what to programs. This was introduced last session and didn’t move; it is being introduced again. Stay tuned for developments.