PBMares Accounting Blog

How the Proposed Tax Plan May Affect Non-Profit Organizations - New Excise Tax on Private Universities

Posted by Nick Preusch, JD, LLM, MSA, CPA on Nov 16, 2017 12:15:41 PM

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The House Ways and Means Committee have released its first bill of the "Tax Cuts and Jobs Act." The 429 page proposed bill is the first look at the committee's proposed tax changes. There is still a long road until there is an actual bill passed by Congress. The bill still requires a vote in the House. The Senate then will attempt to pass a similar bill. Once both bills are passed, it will need to go through a process known as reconciliation where the House and Senate create a joint bill that will go to the President's desk for signature.

While we still may be a ways out of a final bill, PBMares, will keep everyone in the non-for-profit world on any changes that will affect them every step of the process.

At the organizational level, the proposed changes are pretty bare. The proposed changes clarify a rule about unrelated business income tax treatment of entities treated as exempt from taxation under IRC 501(a). The proposed changes also delete the phrase "from research" in IRC 512(b)(9) relating to excluding research income limited to publically available research and replacing the phase with "from such research."

The major change comes in the form of a new excise tax applied to private colleges and universities. The proposed bill will impose a 1.4 percent excise tax on net investment income against any private university or college that has more than 500 students whose prior year assets that are unrelated to the organization's exempt purpose have a prior year fair market value greater than $100,000 per student of the institution. This tax will then really impact colleges and universities with very large endowment funds. For example, a university with 500 students would need an endowment fund of over $50,000,000.

Topics: Not-for-Profits, Tax Updates

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Nick Preusch, JD, LLM, MSA, CPA

Nick is a Tax Manager at PBMares, LLP and part of the firm’s Not-for-Profit Team. PBMares, LLP is an accounting and business consulting firm serving U.S. and international clients, with offices in the Mid-Atlantic.

For more information, please contact the author at NPreusch@pbmares.com or visit: www.pbmares.com.

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