Nonprofit Groups Support Repeal of Nonprofit UBIT

February 14, 2019

The Honorable James E. Clyburn
Office of the Majority Whip
H-329 The Capitol
United States House of Representatives
Washington, DC 20515

RE: The Stop the Tax Hike on Charities and Places of Worship Act

Dear Representative Clyburn:

On behalf of the National Council of Nonprofits, the nation's largest network of charitable nonprofits, and Together SC, the state association of nonprofits in South Carolina, we write to express our sincere appreciation for your introduction of the Stop the Tax Hike on Charities and Places of Worship Act.

Your legislation would repeal new Internal Revenue Code Section 512(a)(7) that imposes an unrelated business income tax on nonprofits for their expenses providing transportation benefits to their employees. Because of this provision, nonprofit employers, including houses of worship, now must pay a 21 percent tax on the amounts they spend providing public transit to their employees, such as Comet and CARTA bus passes in and around your district. Equally troubling, the tax applies to the costs houses of worship and other nonprofit organizations pay to provide parking for their employees. Further, houses of worship and other nonprofit organizations must pay this new tax not only on the amount of direct expenditures they make, but also on the amount that their employees ask to have withheld from their paychecks on a pre-tax basis, that is, voluntary salary reduction agreements made pursuant to federal law.

Ninety-two percent of America's nonprofits have budgets under $1 million; 88 percent have budgets less than $500,000. This new federal income tax on nonprofits' expenses is imposing significant costs and record-keeping burdens on nonprofits, making it harder for nonprofits to address their charitable missions and more difficult to recruit and retain employees.

On June 21, 2018, the National Council of Nonprofits submitted a letter to the Department of the Treasury and the IRS summarizing extensive issues and concerns, plus providing many questions raised by more than two dozen organizations about new unrelated business income taxes Congress imposed on nonprofits. Recognizing that Treasury and the IRS lack authority to eliminate the statutory provisions, we and our colleague organizations asked for a delay in the implementation of the taxes until one year after promulgation of Final Rules clarifying the many problems with the new tax law. Treasury and the IRS ultimately issued partial guidance on December 10 that requires a four-step calculus for determining when parking expenses lead to income taxation, but the government failed to provide the relief that nonprofit organizations urgently need.

Your legislation provides a real solution by repealing a tax that never should have been levied. Taxing tax-exempt organizations is not merely an oxymoron, it is counterproductive and harmful to local communities that rely on the services that charitable and other tax-exempt organizations provide.

Representative Clyburn, it is imperative that Congress immediately repeal new Internal Revenue Code Section 512(a)(7) to avoid manifest injustice, taxpayer confusion, risky speculation about what all is covered and how to calculate what might be due, and filings of potentially inaccurate and/or unnecessary forms by hundreds of thousands of houses of worship, charitable nonprofits, and foundations. Your Stop the Tax Hike on Charities and Places of Worship Act would do that by repealing the harmful provision.

Notably, repeal of this provision should be considered a bi-partisan priority. In the waning days of the 115th Congress, Representative Kevin Brady (R-TX), then Chairman of the House Ways and Means Committee and the sponsor of the original language, publicly agreed that the provision should be eliminated by including repeal language in his proposed year-end tax bill.

The National Council of Nonprofits, Together SC, and the network of nonprofit state associations stand ready to assist in the passage of legislation that will reduce the burdens on community-serving organizations and enable us all to return our focus on what we do best and for which we earn our tax exemption every day — solving problems in our communities.

Sincerely,

David L. Thompson
Vice President of Public Policy
National Council of Nonprofits
Washington, DC

Madeleine McGee
President and CEO
Together SC
Columbia, SC

Enclosure
Letter of the National Council of Nonprofits to Treasury and the IRS, June 21, 2018