Overview
Yesterday, the House Ways and Means Committee released the Tax Cuts and Jobs Act to overhaul major aspects of the US tax system, many of which were highlighted in yesterday’s EOA. Today we highlight a few more provisions of the bill that could significantly affect tax-exempt organizations.
Tax-Exempt Bonds
Under current law, interest on certain private activity bonds, including qualified 501(c)(3) bonds frequently used by charities to fund capital improvements, generally is excluded from gross income (and thus exempt from tax). Section 3601 of the bill would repeal this exclusion for interest on private activity bonds issued after December 31, 2017, and section 3602 would make interest on advance refunding bonds issued after that date taxable.
Executive Compensation
Under section 3801 of the bill, the rules for deferred compensation for tax-exempt organization employees under sections 457(f), 457(b), and 457A would be repealed with respect to services performed after December 31, 2017. Presumably, these amounts would be governed by proposed new section 409B, which generally makes compensation taxable when there is no substantial risk of forfeiture (i.e., vesting provisions lapse). In addition, section 3803 of the bill would impose an excise tax similar to the parachute tax under section 280G for executives of certain tax-exempt organizations for payments contingent upon a separation from employment.
Chairman Brady introduced an amendment to the bill today, which did not substantively change the provisions aimed at tax-exempt organizations. The bill is scheduled for committee markup on November 6, at which time additional amendments are expected to be introduced. Click here to view a House Ways and Means Committee section-by-section summary of the bill.