Public Law 116-94, the Further Consolidated Appropriations Act (the Act), was signed by the President on December 20, 2019. Among the many provisions of this Act were two that have a direct impact on not-for-profit organizations.
The first of these changes is the repeal of the “Parking Tax.” Section 302 of the Act removed Internal Revenue Code (“IRC”) Section 512(a)(7). The repeal is effective back to the date that IRC Section 512(a)(7) was added to the IRC by the Tax Cut and Jobs Act of 2017. Due to the retroactive repeal of this provision, a tax-exempt organization that paid tax due to the addition of the cost of providing certain transportation fringe benefits to employees as a tax-free fringe benefit to its Unrelated Business Taxable Income (UBTI) in prior years is now eligible to have the related tax refunded. At this point, the method of requesting and receiving this refund has not been announced by the IRS, but most likely this process will entail filing an amended Form 990-T requesting the refund. For many organizations, it may not be cost effective to request the refund.
In addition to the repeal of the “Parking Tax”, the Act changed the net investment income tax paid by private foundations. Prior to the Act, IRC Section 4940 required private foundations to pay an excise tax equal to 2% of its net investment income. In certain circumstances, private foundations could qualify for a reduced 1% rate instead of the 2% rate. The Act ends the two-tiered system by instituting a one-level tax at a rate of 1.39%. This change is effective for tax years beginning after the date of enactment.
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