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Federal File

Coverage of legislation and regulatory activity that affects higher education

By Liz Clark and Mary Bachinger

The Long Road to Tax Reform

Lawmakers continue to raise the idea of comprehensive tax reform in debates over deficit reduction and economic growth. Indeed, future large-scale tax code changes could have profound implications for higher education. The House Ways and Means Committee Chairman, Dave Camp (R-MI), recently released a comprehensive tax reform plan, called a "discussion draft" because it was not officially introduced as legislation.

However, most inside-the-Beltway political analysts believe passage of a major overhaul to the federal tax code is unlikely in the near future.

In his proposal, Chairman Camp approached reform with several goals in mind: simplifying the tax code, reducing rates (individual and corporate), and stimulating economic growth. "Broaden the base and lower the rates" has served as a guiding principle for the members of Congress and staff involved in developing the draft. The summary document states, "Overall, the changes to the individual rate structure would create a simpler, fairer, and flatter federal income tax."

Explore Tax Reform Further in Seattle

During one of the concurrent sessions at the upcoming NACUBO 2014 Annual Meeting in Seattle, NACUBO's Matt Hamill, senior vice president for advocacy and issue analysis, and Liz Clark, director, congressional relations, will discuss the prospects for comprehensive tax reform; cover the debates over the charitable deduction, municipal bonds, and the tax-exempt sector; and explore the risks and opportunities for students and institutions.

As a result, Camp eliminates many credits, deductions, and exclusions—and thus assumes that more filers will decide against itemizing and opt for the standard deduction. The corporate tax rate would be a flat 25 percent rate beginning in 2019. However, by eliminating many deductions, adding new excise taxes, and limiting certain tax-exempt practices, the scope of proposed changes to higher education that Camp proposes would have wide-ranging impact on students, families, the workforce, and the business operations of colleges and universities. More information about Chairman Camp's plan can be found on the NACUBO Web site.

The political landscape on Capitol Hill, however, does not offer an easy road ahead for the Camp discussion draft. On March 24, Chairman Camp announced his plans to retire, and barring any surprise challenges, current House Budget Committee Chairman Paul Ryan (R-WI) is expected to become Ways and Means Committee chair. In his plan for 2015 tax and spending priorities, Ryan did not embrace the Camp plan, and House leadership has demonstrated little interest in seeing it move forward beyond the discussion stage. The Ryan budget plan was passed by the House on Thursday, April 10.

In the Senate, recent turnover of the Finance Committee chairmanship has slowed progress on comprehensive tax reform efforts in that chamber. On February 12, Ron Wyden (D-OR) officially became the chairman of the Senate Finance Committee, taking the helm from Max Baucus (D-MT), who is now serving as U.S. ambassador to China. Wyden immediately focused on addressing the 55 tax provisions that expired on Dec. 31, 2013, suggesting that the extenders could be a "bridge to more comprehensive reform."

On the other end of Pennsylvania Avenue, White House FY15 revenue proposals did not signal any intentions to pursue comprehensive reform. However, the administration revisited a number of proposals included in the FY14 budget that institutions of higher education should note. Once again, the White House would require colleges and universities to report on IRS Form 1098-T amounts paid rather than amounts billed for qualified tuition and related expenses. It would also limit to 28 percent (1) the charitable deduction for those making $250,000 or more per year, and (2) the exclusion of tax-exempt interest for municipal bonds; and would call for new capital financing programs.

The president's budget would also permanently extend the American Opportunity Tax Credit (AOTC), and would improve the coordination between AOTC and Pell grants so that the latter does not count against student eligibility for the refundable portion of the tax credit.

While closely monitoring these developments, NACUBO does not anticipate a sweeping tax package to pass anytime soon. However, policy makers might consider advancing certain elements of the Camp or White House proposals as stand-alone measures or as part of other legislative proposals. Election-year politics and gridlock on Capitol Hill, however, will stymie swift action on most issues this year, at least until a lame-duck Congress convenes after Tuesday, November 4.

NACUBO CONTACT Liz Clark, director, congressional relations, 202.861.2553, lclark@nacubo.org, @lizclarknacubo

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IRS Announces Changes to 2013 Forms 990 and 990-EZ

The Form 990, Return of Organization Exempt From Income Tax, was substantially redesigned beginning with the 2008 filing year. Since then, the IRS has revised the form annually to modify and clarify certain reporting requirements. The IRS recently released a list of the significant changes made to both the 2013 Form 990 and the Form 990-EZ—the short form that can be filed by organizations with gross receipts of less than $200,000 and total assets of less than $500,000 at the end of their tax year.

Most of the Form 990 changes relate to the instructions and the accompanying schedules, rather than the actual form.
They include:

  • Part IV, Checklist of Required Schedules. Explains when an organization needs to respond "Yes" to report that it became aware of an excess benefit transaction with a disqualified person in the prior year.
  • Part VI, Governance, Management, and Disclosure. Clarifies what compensation paid by a management company to interested persons needs to be reported on Schedule O.
  • Part VII, Compensation of Officers, Directors, ... Employees, Section A. Requires reporting of a director's compensation for nondirector independent services provided to the organization and related entities. It also clarifies that compensation paid by a management company to an officer, director, trustee, key employee, or highly compensated employee does not generally have to be reported.
  • Part IX, Statement of Functional Expenses. Explains how to report expense payments and reimbursements to contractors.
  • Glossary. Clarifies that the term "contributions" does not include either donations of services or discounts on the sale of goods.
  • Appendix F, Disregarded Entities and Joint Ventures. Explains when to treat a single-member LLC as a disregarded entity of its sole member/owner.
  • Schedule D, Supplemental Financial Statements, Part VIII. Now requires a description of each program-related investment on a separate line.
  • Schedule F, Statement of Activities Outside the United States. Clarifies that a filer does not have to report on investments in entities domiciled overseas but traded on a U.S. stock exchange.
  • Schedule I, Grants and Other Assistance to Organizations, Governments, and Individuals in the United States. Includes new instructions that define domestic organizations, domestic governments, and domestic individuals.
  • Schedule J, Compensation Information. Clarifies that a reportable severance payment includes a payment made pursuant to a separation agreement entered into by the parties. It also explains what information must be reported with respect to unrelated organizations that provide compensation to officers, directors, and others.
  • Schedule L, Transactions With Interested Persons. Explains when a foreign organization may be treated as an IRC Section 501(c)(3) charity for purposes of the Part IV reporting exceptions.

NACUBO CONTACT Mary Bachinger, director, tax policy, 202.861.2581, mbachinger@nacubo.org

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