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Capitol Correspondence - 04.01.19

ANCOR Joins Nearly 500 Organizations in Asking Congress to Act on UBIT/UBTI

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Responding to our members’ growing concerns about a new 21 percent tax on “fringe” employer benefits such as transportation, ANCOR has formally joined ASAE’s UBIT Coalition and signed onto its large coalition letter requesting Congressional action to repeal this tax. The tax is taking effect this filing season, including provisions making employers liable to pay taxes this year on such items as reserved parking for employees unless they remove those provisions by March 31. ANCOR opposed the 2017 tax reform bill in part because it created this new tax through changes to the formula setting the unrelated business income tax (UBIT). ANCOR, already an ASAE member, is able to further expand its capacity for action on this issue by joining the UBIT Coalition. The House and Senate have introduced bipartisan bills seeking to repeal this tax in response to non-profit advocacy efforts.

As written in the letter:

“Administratively, the new tax is excessively burdensome. This new requirement forces many tax-exempt employers, including churches and other places of worship, to file federal Form 990-T for the first time, irrespective of their engagement in unrelated business activity. Many organizations have already misfiled Form 990-T or missed filing deadlines altogether. A study commissioned by Independent Sector reveals that 156 organizations reporting UBIT for the first time will incur an estimated $200,000 in administrative expenses. Those nonprofits responding to the survey also estimated that they will see an average of nearly $12,000 diverted from their mission in order to meet this increased tax and administrative burden. Many large organizations will be forced to divert even larger sums from their missions to pay the new tax while smaller nonprofits are likely to pay more in accounting and legal fees spent trying to interpret and comply with the law than they actually pay in taxes.

To be clear, subjecting the tax-exempt sector to UBIT on transportation and parking benefits has and will continue to divert funds otherwise designated for valuable mission-related services.”

Related item: ANCOR wanted to follow-up on this article from last week regarding a House Ways and Means Committee hearing which we flagged as having the possibility of mentioning the UBIT rule. The hearing was not ultimately taped, and witnesses’ testimonies did not mention the UBIT rule. However, on a related note Nancy Abramovitz, Director of the Janet R. Spragens Federal Tax Clinic at American University’s Washington College of Law, did mention in passing the challenges posed by the removal of the charitable tax deduction. Changes to the charitable deduction were another reason ANCOR opposed the 2017 tax reform bill.