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Tax Reform: Nonprofits and their Executives Brace for Impact

December 7, 2017

The Senate voted yesterday to begin formal negotiations with the House of Representatives to reconcile their two versions of the Tax Cuts and Jobs Act, a bill that seeks to make sweeping changes to federal tax law. Republicans are racing to enact a final bill before Christmas. Under both versions of the bill, tax-exempt organizations would face new burdens and taxes in order to pay for tax cuts elsewhere. In particular, the proposed changes would:

make it harder for larger tax-exempt organizations to attract and retain top talent, by imposing a new 20% tax on annual compensation of over $1 million per year paid to any of their top 5 highest paid employees (including certain severance payments);

reduce revenues, by eliminating certain tax incentives to make charitable donations;

eliminate critical low-cost financing for hospitals and universities from tax-exempt bonds;

make certain employee benefits more expensive, by taxing organizations that pay certain fringe benefits and taxing employees on certain employer-provided education and tuition assistance; and

add new pressures on Section 501(c)(3) organizations to support or oppose political candidates, by loosening the current absolute prohibition against political activity.