2020 Year-End Tax Guide

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A Busy Year for Nonprofit Tax Guidance

Without even taking into consideration the major disruption caused by the coronavirus pandemic, 2020 has been a very busy year for those involved with nonprofit organizations. Contributing to the pace of change is much new guidance related to recent legislation and other-long awaited items. It started with an early holiday present at the end of 2019, when the controversial and universally despised “parking tax” was retroactively eliminated. At the same time, the long-discussed modification of investment income tax rates for private foundations was implemented.

In addition, proposed regulations related to unrelated business income “silo” rules, as well as proposed regulations related to excess compensation rules, were published. Finally, the IRS issued Notice 2020-36, which provides a proposed revenue procedure related to updating and modifying the group exemption process. While covering comprehensive discussion about all of the nuances of these very technical issues is beyond the scope of this guide, below is a general summary and a couple of key points related to each. PARKING TAX The Tax Extender Bill signed by President Trump at the end of 2019 included the full and retroactive repeal and the elimination of the tax imposed on qualified transportation benefits, otherwise known as “the parking tax.” The IRS issued guidance for tax-exempt organizations claiming a refund or credit of unrelated business income taxes paid due to the revisions to this law. To claim a refund or credit of the tax originally reported on Form 990-T, the IRS states that organizations should file an amended Form 990-T for the year in which the tax was paid and provides specific guidance depending on the year being amended. This brings an end to one of the most controversial tax topics that has faced nonprofit organizations in many years.

NET INVESTMENT INCOME TAX CHANGE FOR PRIVATE FOUNDATIONS

Excise taxes on private foundations were simplified by the 2020 Appropriations Act. Under the rules, the private foundation paid either a 1% or 2% excise tax on net investment income depending on its current year qualified distributions compared to average distributions over the prior five years. This two-tiered tax rate has been eliminated, and the excise tax on net investment income for private foundations was changed to a single rate of 1.39%. This change is effective for tax years beginning after December 20, 2019.