The recently enacted Bipartisan Budget Act of 2018 (BBA) includes provisions that affect exempt organizations.
The president on February 9, 2018, signed into law a short-term government spending and budget bill—the Bipartisan Budget Act of 2018. Read TaxNewsFlash-Legislative Updates
Among other things in the BBA, there are two provisions that directly affect exempt organizations:
Both provisions were considered during the tax reform process in late 2017; however, neither provision was included in the final, enacted version of the new tax law (Pub. L. No. 115-97, enacted December 22, 2017).
The BBA includes a measure that amends section 4968 to provide that, in determining whether a college or university has at least 500 students of which more than 50% are located in the United States, only “tuition-paying” students are counted.
Prior to the amendment, the 1.4% excise tax imposed on the net investment income of private colleges and universities applied to schools with at least 500 students (more than 50% of which are located in the United States) and non-exempt use assets with a value at the close of the preceding tax year of at least $500,000 per full-time student. There was no requirement that the students be “tuition-paying.”
For additional analysis of section 4968, read KPMG’s report about provisions in the new tax law of particular interest to exempt organizations and their donors: Tax reform: Issues for exempt organizations (Pub. L. 115-97) [PDF 316 KB].
The BBA amends section 4943 by creating an exception to the excise tax applicable to a private foundation’s ownership (generally more than 20%) in a for-profit business. To meet the exception, the private foundation must satisfy the following conditions:
This new exception permits a private foundation to own a business enterprise that is unrelated to the private foundation’s exempt purposes if the business is independently operated and its profits are dedicated to the foundation. It also allows the business to retain a reasonable reserve for working capital and other business needs.
Although section 4943 also applies to donor advised funds, non-functionally integrated Type III supporting organizations, and certain trusts, these entities are ineligible for this exception.
For more information, contact a tax professional with KPMG’s Washington National Tax practice:
Alexandra Mitchell | +1 202 533 6078 | firstname.lastname@example.org
Preston Quesenberry | +1 202 533 3985 | email@example.com
Randall Thomas | +1 202 533 3786 | firstname.lastname@example.org
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.