The National Council of Nonprofits, which has been in the forefront of challenging the “pauses” and cutbacks in federal contracts for nonprofit organizations under the Trump Administration, has warned of numerous threats to nonprofits in the Tax Bill being considered by the House of Representatives. It has urged nonprofits to contact their legislators to oppose new taxes and to support new incentives for charitable giving.
The Tax Bill currently being considered includes provisions like those of H.R. 9495 that was proposed but not passed near the end of the last session of Congress. It would allow the Internal Revenue Service to suspend the tax-exempt status of any charity it designates as providing material support to terrorists. It could act unilaterally without any sort of due process. The provision, the NCN says, “could allow any Administration to target charitable nonprofits on ideological grounds.” Although the provision would allow charities to contest the suspension of their status, they would be considered non-exempt unless and until they had proved that the charges were untrue.
The Tax Bill also includes new taxes on college and university endowments and on larger private foundations. Although various tax levels have been bandied about for each class, this appears to be the first time they have been put into specific legislative form.
The present tax on large private college and university endowments is 1.4% on their investment income. The current tax is applied to any such institution with endowment of more than $500,000 per student. It generated receipts of $380 million on 56 institutions in 2023, the last year for which date is available. (See Nonprofit Issues® Vol. XXXIV, No. 5.)
The proposed Bill would increase the tax in tiers based on the amount of endowment per student. It would remain at 1.4% on endowments up to $750,000 per student, rise to 7% for endowments between $750,000 and $1,250,000 per student, double to $14% for endowments between $1,250,000 and $2 million per student and jumping to 21% on endowments of more than $2 million per student.
The proposed Bill would also raise the tax on net investment income of private foundations, which is now $1.39 percent, in tiers based on the net investment assets of the foundation. For foundations with investments of less than $50 million, it would remain at 1.39%. For foundations with assets between $50 million and $250 million it would double to 2.8%. For foundations with assets between $250 million and $5 billion, it would be 5%, and for foundations with assets of more than $5 million, it would be 10%.
NCN also supports including a new above-the-line deduction for charitable contributions for taxpayers who do not itemize their deductions because of the increase in the standard deduction.
The NCN opposes an expansion in unrelated business income taxes on some charities and questions proposals in other bills to impose serious cuts in Medicaid which could end up removing 13.7 million individuals from health insurance, cuts in SNAP benefits and cutting an estimated 4.5 million children from the child tax credit.
YOU NEED TO KNOW
We have for years taken the position that a public charity that is not lobbying is not doing its job, because so many of the issues on which charities focus their activity are significantly affected by public policies. At the very least, nonprofits should be members of their industry associations, like the National Council and its numerous state affiliates, who devote a noticeable portion of their time and energy to general advocacy and specific lobbying when appropriate.
But this is also a critical time for each organization to let its members of Congress know directly how these bills will affect their operations. Taxes are likely to be affected for the next ten years, as they were by the 2017 tax law, which the current proposals are intended to replace. Appropriations may be affected for a lesser period, but the Tax Bill will likely determine how much revenue is available to spend for a much longer period. Some representatives listen to their constituents, but only if the constituents speak. Now is the time to speak.
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