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Nonprofits and Foundations set to lose on Tax Bill

Tahoe Truckee Community Foundation
Published on December 26, 2017

Congress is poised to pass a set of wide-reaching tax changes this week that have been roundly criticized by nonprofit and philanthropic groups, with a vote in the House planned for Tuesday and a Senate vote expected to follow shortly thereafter.

On Friday evening, before members of Congress left Washington for the weekend, House and Senate conferees released a draft of a bill that merged legislation previously passed by the two chambers. Charity advocates quickly pounced on the conference report, saying it would reduce giving by up to $20 billion a year.

“The changes proposed in the tax code would fundamentally weaken the ability of charitable organizations to raise money, provide services, and benefit our communities,” wrote Dan Cardinali, president of Independent Sector; Tim Delaney, president of the National Council of Nonprofits; and Vikki Spruill, president of the Council on Foundations, in a joint statement.

Republicans control both chambers of Congress and appear to have the votes they need to send the legislation to President Trump for his signature. Still, the charity leaders urged their members to press lawmakers to vote down the tax overhaul, saying it “increases the tax burden on charitable organizations, as well as the most vulnerable people in our country, to give tax cuts to corporations and the wealthiest among us.”

The bill would double the standard deduction taxpayers can take as an alternative to itemizing their taxes, which would effectively eliminate the tax incentive for all but the wealthiest Americans to donate to charity. To maintain the incentive, many nonprofits pushed unsuccessfully for a “universal deduction” that would allow all taxpayers to claim charitable deductions even if they don’t itemize.

Nonprofit advocates did beat back a provision that was in the House version of the bill that would have weakened rules that prohibit nonprofits from supporting and contributing to candidates and campaigns. Many nonprofit leaders feared that the proposed change in what is known as the “Johnson Amendment” would have eroded the public trust in nonprofits and flooded “dark money” into charitable organizations.

House and Senate conferees agreed to drop the Johnson Amendment changes late last week, mainly because it violated complex congressional procedural rules.

Tax-Bill Provisions

Here how lawmakers dealt with other provisions that affect charities and nonprofits, according to the National Council of Nonprofits and other sources that have analyzed the bill:

  • The estate tax, which provides an incentive for the wealthy to give to charity to reduce their tax burden, was maintained. However, the exemption was doubled to about $22 million for couples, shielding all but the most wealthy from the levy.
  • The bill would place a new 1.4 percent excise tax on investment income on some private colleges and universities with very large endowments.
  • Charities would be hit with an excise tax of 21 percent on compensation above $1 million for a nonprofit’s top five highest-paid employees.
  • No changes were made to the excise tax on foundations’ investment income. Foundation advocates had pressed to change the current two-tiered tax, which is either 1 percent or 2 percent, depending on a grant maker’s payout history, to a flat 1 percent.
  • No changes were made to policies regulating donor-advised funds. Some nonprofit tax experts had pushed for Congress to include a mandatory payout for the funds. The House version of the bill did not go as far; it included a provision that funds develop a policy on idle accounts and report their payout totals annually. Those provisions were not included in the final bill.
  • Donors would be able to receive a charitable tax deduction for cash gifts of up to 60 percent of their adjusted gross income, up from the current limit of 50 percent.
  • No changes were made to tax-exempt private-activity bonds, which some nonprofits use to finance community-development projects. The House version of the bill would have eliminated their use.


This Chronicle of Philanthropy article, by Alex Daniels, provides a roundup of the policy provisions in the tax bill that will affect the nonprofit sector. Look for Part II coming in January. You can read the original article here.