As previously discussed in NBOA coverage, several areas of the GOP’s Tax Cuts and Jobs Act passed in January 2018 potentially impact independent schools. The IRS recently released additional information in Notice 2018-67 that may help clarify nonprofits’ application of certain pieces of the legislation.
In particular, the new Internal Revenue Code Section 512(a)(6) requires tax-exempt organizations to determine if they have more than one “unrelated trade or business,” and to calculate their unrelated business income tax (UBIT) for each unrelated trade or business activity separately. The original legislation “does not provide criteria for determining whether a tax-exempt organization has more than one unrelated trade or business, or how to identify separate trades or businesses for purposes of calculating UBIT,” according to a recent blog post by CohnReznick, an accounting and tax advisory firm. Some schools may be relieved that this notice allows for some aggregation of partnership interests based on certain criteria.
Two additional items of relevance to some independent schools:
- UBIT for debt-financed income could create a burden for tax-exempt organizations if each debt-financed property is treated as a separate trade or business. Treating such UBIT in the aggregate could reduce this burden. The IRS requests comments in this regard.
- Qualified transportation and other fringe benefits as outlined in Section 512(a)(7) are not considered an unrelated trade or business; therefore UBIT related to these is not subject to Section 512(a)(6).
Additionally, the IRS recently released a draft of the new form W-4 that takes into account changes to withholdings as dictated by the Tax Cuts and Jobs Act. The draft is currently open for comments, meaning that the final form will likely change. The draft form cannot officially be filed, so be on the lookout for a final form that may be distributed to employees in preparation for 2019 payroll.
For questions or comments, contact Jennifer Osland Hillen, NBOA's vice president, professional development and business affairs, at jennifer.hillen@nboa.org.
