Not-for-Profit Organizations Need to Evaluate Increases for Unrelated Business Taxable Income

Under the new tax reform law, you might be subject to new unrelated taxable business income (UBTI) for certain fringe benefits provided for your employees.

Specified under the new law, UBTI is increased by the Internal Revenue Code section 512(a)(7) by any amount for which:

  • a deduction is not allowable because of Section 274, and
  • is paid or incurred by the organization after December 31, 2017.

This rule does not apply to the extent the amount paid or incurred is directly connected with an unrelated trade or business which is regularly carried on by the organization.

Fringe benefits given to employees that are affected include items such as:

  • Qualified transportation benefits (commuter, transit and bicycle commuting reimbursement)
  • Qualified parking benefits
  • On-premises athletic facility
  • Entertainment expenses

With these changes taking effect, nonprofits should list out the types of benefits (outside of insurance) currently provided to employees and review each with your CPA to examine if there is UBTI on those items.

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