Kelly Bullis
How is it possible that Congress would deliberately come up with a new way to tax a non-profit organization. The name says it all. “Non-profit,” for crying out loud. But oh no, too many Congress members have decided to resurrect a law that was repealed back in 2019 in an effort to find revenue to balance the budget.
So how can Congress come up with a way to tax a non-profit organization? There is a little known quirk in the tax law called “unrelated business income tax” or UBIT for short. It already includes provisions for taxing non-profits who raise funds for their non-profit in a way that the IRS says is “a trade or business activity carried out by the organization that is unrelated to its exempt purpose.” An example, operating a gift shop, publishing a magazine, or running a commercial venture. If the income from such activities is substantial and not directly connected to the organization’s exempt purpose, it may be subject to the dreaded UBIT.
Another potential UBIT activity is renting out real estate. A parking lot and or a building rented to a for-profit business can trigger UBIT.
There are exceptions to triggering the UBIT. If the income from the potential UBIT activity is generated substantially by volunteers, then it is exempt. Such activities would include a fundraising event, such as a car wash, etc.
Now comes the new addition to the UBIT rule that Congress is proposing to accomplish. (By the way, the House has passed this bill HR1, also known as the “Big Beautiful Bill,” and it is currently in the Senate for consideration.) They want to have the non-profit add their employee’s transportation fringe benefits, such as mass transportation or parking arrangements to UBIT. Think about it for a minute. Congress wants a non-profit to add an expense to income. How stupid is that?
In this bill, it exempts churches.
The Joint Committee on Taxation anticipates that the federal government will extract more than $2.6 billion from non-profits over the next 10 years if this new provision is enacted. And this does not include the additional costs that non-profits will incur to be in compliance with this new provision.
I’m thinking that Americans who donate to a non-profit do not like the idea of some of their gift going to pay federal income tax instead of going toward the charity’s purpose. The reason why somebody gives to a non-profit charity is to know that the whole gift is going toward the charity’s purpose.
Have you heard? Job 21a says, “Take care; do not turn to iniquity.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. On the web at BullisAndCo.com. Also on Facebook.