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NACUBO Analysis and Advocacy Continue as New Tax Law Goes into Effect

February 2, 2018

In the wake of passage of the Tax Cuts and Jobs Act of 2017 (TCJA) , higher education institutions are tackling many issues and questions as they begin to operationalize requirements of the new law. NACUBO is aware of the challenges facing schools as they try to implement the new tax provisions, particularly in the absence of any guidance from the Treasury Department or the IRS.

NACUBO's advocacy team is working on a number of fronts to communicate college and university concerns to federal policymakers. They are currently engaged in discussions with Treasury staff highlighting areas which are most in need of clarification.

In addition, working with the volunteers on NACUBO's Tax Council, the association will submit written recommendations to the IRS and Treasury, offering campus perspectives for interpreting the provisions, along with practical examples that illustrate how the new requirements actually work in a higher education setting.

The Treasury Department is expected to publish a priority guidance plan in the coming weeks and may issue sub-regulatory guidance on some of the issues outlined above. However, some of these issues are unlikely to be a high priority in terms of the department's order of issues on which to publish guidance given the scope of the new tax law.

UBIT Taxes on Certain Fringe Benefits. An institution's or organization's unrelated business income (UBI) will be increased by the amount of certain fringe benefits expenses. Funds paid by the institution to provide transportation and parking benefits will be treated as UBI, and taxed at the 21 percent corporate rate.

Because of a possible legislative drafting error, there are questions as to whether funds paid by the institution to provide access athletic facilities will be treated as UBI. At present, we believe the legislative intent was not to include a new tax on such athletic facility benefits.

Many questions are being raised about what precisely this new tax applies to: are pre-tax payments by employees now taxed? For example, are amounts spent on university-owned parking facility to be included?

UBIT Basketing. The TCJA requires institutions to separately compute unrelated business income for each "trade or business" conducted, rather than in the aggregate. Further, the new law restricts the deduction limitation for net operating losses to 80 percent of taxable income. This has created uncertainty about pre-2018 losses and how to apply them going forward when they were previously aggregated. Understandably, there is also a great deal of confusion about how specific the basketing or siloing of "lines of business" should be. For instance, is "facility rental" a business activity that encompasses all such activity, or should it be more specific to reflect similar types of rental activities together, for example summer camp rentals, rental of parking, and rental of space for outside events?

Athletic Seating Deduction Repeal. The TCJA prohibits a charitable deduction for amounts paid to an institution in exchange for the right to purchase tickets or seating at an athletic event. Previously, donors could deduct 80 percent of such contributions for preferential seating. The law is clear that any deduction for seating or preference for seating is now nondeductible. Institutions are examining donor point systems that have been used to determine priority seating arrangements and how to bifurcate nondeductible amounts from deductible gifts.

Executive Compensation Tax. Tax-exempt organizations and institutions are now subject to an excise tax on compensation in excess of $1 million paid to any of its five highest-paid employees for the tax year. We believe lawmakers intended for this new tax to apply to public institutions, however, the legislative language did open the door to an interpretation that exempts certain public colleges from this tax. There are also some exceptions to this tax. For example, the law also exempts compensation for the medical services of qualified medical professionals (doctors, nurses, or veterinarians). This new tax also raises questions about the interplay with existing rules taxing excess benefits paid to insiders at exempt organizations under section 4958 of the Internal Revenue Code, also referred to as intermediate sanctions.

Further, a number of our member institutions are impacted by the endowment excise tax. NACUBO's federal affairs team is engaged with affected institutions.

NACUBO members are welcome to flag other concerns with the new tax law via email at advocacy@nacubo.org.

¹The legislation’s official name is “H.R. 1 An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.”

Contact

Mary Bachinger
Director, Tax Policy
202.861.2581
E-mail

Liz Clark
Senior Director, Federal Affairs
202.861.2553
E-mail

Megan Schneider
Assistant Director, Federal Affairs
202.861.2547
E-mail