Removing Barriers Blog

CUNA Writes to Hill Lawmakers regarding Tax Legislation- UPDATE
Posted November 28, 2018 by CUNA Advocacy

November 29, 2018 (10:00 AM) … House Ways and Means Chairman Kevin Brady (R-TX), the House’s chief tax writer, offered a “manager’s amendment” to H.R. 88 that will eliminate the UBIT tax on not-for-profit transportation and athletic facilities fringe benefits.  The “manager’s amendment” is automatically made part of the bill as it is considered by the full House of Representatives today.  CUNA thanks Chairman Brady and his staff for their work on this issue. 

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CUNA President and CEO Jim Nussle wrote to Ways and Means Chairman Kevin Brady (R-TX), Ranking Member Richard Neal (D-MA), Senate Finance Committee Chairman Orrin Hatch (R-UT), and Ranking Member Ron Wyden (D-OR) regarding H.R. 88, the Retirement, Savings, and Other Tax Relief Act. 

A 297-page year-end tax bill, CUNA was hopeful that H.R. 88 would have contained needed corrections to the Tax Cuts and Jobs Act of 2017.  However, none of CUNA’s proposed corrections were included in the bill’s initial draft, which is expected to be considered by the full House of Representatives this week. 

The Tax Cuts and Jobs Act of 2017 (TCJA), last year’s large tax reform act, imposes an excise tax on certain executive compensation provided by tax-exempt organizations.  CUNA and other not-for-profit employers are concerned about the lack of parity between existing for-profit and not-for-profit employee contracts regarding the not-for-profit 21 percent excise tax and the deductibility of corporate executive compensation.  The TCJA exempts from deductibility limits existing corporate executive compensation contracts by “grandfathering” in “for- profit” executive contracts in effect on or before November 2, 2017.  No such provision was included for not-for-profit employee contracts.  This amounts to a retroactive tax on the nonprofit sector as these contracts were agreed upon with certain tax considerations assumed.  CUNA and the entire nonprofit sector are deeply disappointed that the new tax technical corrections bill does not address this parity and fairness issue. 

The Tax Cuts and Jobs Act of 2017 (TCJA) also extends the Unrelated Business Income Tax (UBIT) in several areas.  The TCJA requires tax-exempt organizations currently subject to UBIT to pay UBIT (effectively 21 percent) on certain employee fringe benefits, namely transportation and parking benefits, as well as on-site gyms and athletic facilities.  For profit businesses are no longer allowed to deduct these and other employee benefits.  The definitions and IRS guidance regarding this provision is severely lacking in substance and clarity.  CUNA and others requested a delay in the effective date of this provision to provide organizations the needed time to establish new accounting systems to value and track such benefits, which have never been subject to taxation.  A delay of this provision would hold these tax-exempt employers harmless until they have clear instructions on how to file.  However, no delay was included in H.R. 88. 

Further, some cities, including Washington, DC, New York, and San Francisco, have mandated employer-provided pre-tax mass transit benefits.  As a result, employers in those cities cannot avoid the new tax.  Nationwide, thousands of credit unions and other not-for-profit entities that have historically had very limited contact with the IRS and have also never needed this type of administrative expertise, are now suddenly required to begin filing tax returns and pay income tax.  It has been estimated that two million employees living in such jurisdictions have these mandated benefits.  In addition, this new tax on fringe benefits basically taxes an expenditure made by an employer, not sales or other revenue-generating activity.  CUNA and others unsuccessfully lobbied Congress to exempt from this new tax all not-for-profit employers who are subject to these local mandates. 

CUNA is working with other not-for-profit employers to secure needed changes to the bill as it works its way through Congress.