Please note: This blog is current to the date of its publication, June 25, 2021. For more recent updates, contact SST’s experts
This year’s TX CPA Nonprofit Conference offered helpful refreshers and updated guidance regarding tax laws passed within the last few years for Unrelated Business Income (UBI), excess compensation, and other various topics for exempt organizations. Highlights include:
Unrelated Business Income
- UBI Silos Final Regulations
- Exempt Organizations with more than one unrelated trade or business muse compute UBIT separately for each business.
- 2-digit NAICS codes are used determining each business.
- Partnership Interest have special rules and tests that should be reviewed in order to determine how to treat the income from the investment.
- Specific guidance on allocating expenses between UBI and exempt or separate UBI activities will be addressed in separate proposed regulations that are still to come.
- “Reasonable basis” for allocating is to be used in the meantime, in accordance with Treasury Regulations 1.512(a)-1(c)
- Net Operating Losses
- Generated pre-2018 (un-siloed) are taken against total UBI.
- Post-2018 NOLs can only be taken against the activity that produced the NOL.
- 2020 Form 990-T with deadlines on or after April 15, 2021 must be e-filed.
Excise Tax on Executive Compensation
- Excise tax (equal to the corporate tax rate) is imposed on remuneration (compensation) paid to a covered employee in excess of $1 million.
- This is applicable to the tax-exempt organization and related organizations.
- The covered employees are the five highest compensated employees.
- The covered employee list should be reviewed annually, and a schedule should be kept of these employees. Once someone is a covered employee, they will always be considered a covered employee.
- Excise tax (equal to the corporate tax rate) is imposed on excess parachute payments to a covered employee.
- Applicable tax-exempt organizations include organizations exempt under Section 501(a), exempt farmers cooperatives, governmental organizations with income excluded under Section 115(1), and political organizations.
- This should be reviewed on an annual basis.
Other Information of Interest
- Rental of personal property (such as music instruments at a school) are subject to sales tax.
- Sales Tax-free days do not include items sold for $5,000 or more. For example, an auction where the organization purchased the items to sell instead of having them donated.
- Raffle prize must be in possession of the organization prior to selling raffle tickets.
- Nondiscrimination policy for schools should be submitted on Form 5578 if an organization is not filing Form 990.
- Student Designation Account should be considered compensation and be included on a W2 or 1099.
SST is committed to serving organizations that serve others. If your nonprofit is in need of financial guidance, contact our experts today.