The proposed “One, Big, Beautiful Bill” introduces substantial tax policy changes that will significantly impact nonprofit organizations. Here are the key changes and their potential implications:
1. Termination of Tax-Exempt Status for Terrorist Supporting Organizations
The bill empowers the Treasury Department to suspend the tax-exempt status of organizations providing significant support to listed terrorist groups. Nonprofits must now exercise heightened diligence in monitoring affiliations and partnerships, as even indirect or unintentional support could jeopardize their tax-exempt status. Strong compliance programs and thorough due diligence become essential safeguards.
2. Excise Tax on Excess Compensation
By broadening the scope of employees subject to the excise tax on excess compensation (over $1 million), the bill incentivizes nonprofits to reassess executive compensation structures. Nonprofits might face challenges attracting and retaining top talent while balancing public perception and fiscal responsibility. Transparent compensation policies and robust governance practices will be critical.
3. Tiered Excise Taxes on Investment Income of Colleges and Universities
The introduction of a tiered excise tax based on student-adjusted endowment size could dramatically impact financial strategies of well-endowed institutions. Increased tax rates, reaching up to 21% for the wealthiest universities, might reduce funds available for scholarships, research, and academic programs. Institutions may be prompted to reconsider investment strategies and spending policies.
4. Increased Excise Taxes for Private Foundations
The bill significantly raises taxes on investment income for larger private foundations. Foundations managing substantial assets may face a notable reduction in distributable funds. Consequently, this change could limit grant-making capabilities, forcing foundations to prioritize their giving strategies or reconsider their investment approaches to maintain charitable distributions.
5. Adjustment in Employee-Owned Stock Holdings Calculation
Changes in handling stock repurchases from retiring employees involved in Employee Stock Ownership Plans (ESOPs) might alter foundations’ strategic decisions regarding corporate partnerships. Foundations must recalibrate investment decisions and compliance measures to mitigate unexpected tax consequences from holdings in employee-owned enterprises.
6. Changes to Unrelated Business Taxable Income (UBTI)
- Fringe Benefits: Including transportation fringe benefits as taxable income raises operational costs for nonprofits, prompting them to rethink benefit packages.
- Name and Logo Royalties: Organizations will now pay taxes on income from licensing their names or logos. Nonprofits relying on these royalties must anticipate reduced net revenue and reconsider marketing strategies.
- Research Income: Revenue from non-public research will now be taxed as unrelated business income. Organizations focused on research must clearly delineate public versus private research activities and might reconsider partnerships or project scopes.
7. Universal Charitable Deduction
The bill reinstates a temporary deduction for non-itemizing taxpayers, allowing up to $150 for single filers and $300 for married filing jointly, applicable to charitable cash contributions made between 2025 and 2028. Contributions must be made to qualified charities, excluding Donor-Advised Funds and supporting organizations. While limited, this measure effectively reinstates a form of universal charitable deduction temporarily, potentially increasing charitable giving among smaller donors.
Strategic Implications & Mini Action Plan
Collectively, these provisions may significantly reshape nonprofit operations. Organizations must proactively revise financial management practices, investment strategies, compliance protocols, and revenue diversification tactics to navigate these new regulatory environments effectively. Enhanced fiscal transparency and adaptive governance will be pivotal for nonprofits aiming to sustain their missions amidst these challenging policy changes. Here a Mini Action Plan:
- Analyze Donor Impact: Review recent giving trends to assess how the Universal Charitable Deduction could affect donor participation.
- Assess Tax Exposure: Map current compensation, investment, and UBTI profiles against the new excise-tax and UBTI rules.
- Update Financial Models: Adjust budgets and forecasts to incorporate potential new tax liabilities and revenue shifts.
- Strengthen Governance: Implement or refine compliance protocols for partnerships, executive pay, and unrelated business activities.
- Advocate & Educate: Mobilize stakeholders, including board members, staff, and donors, to contact Congress and raise awareness of the bill’s nonprofit impacts.
Take Action Now
Contact your Members of Congress today to let them know how these provisions could affect your organization and the communities you serve. Your voice matters; advocate for amendments that protect the capacity of nonprofits to fulfill their missions.
Find and contact your Member of Congress: https://www.congress.gov/members
How Inter CPA Can Help
- Tax Planning & Compliance: Optimize tax strategies and build compliance programs to protect your tax-exempt status.
- Compensation & UBTI Advisory: Streamline executive pay and manage unrelated business income triggers.
- Investment & Endowment Review: Advise on tax-efficient portfolio structuring under new excise tax tiers.
Ready to safeguard your organization’s finances? Contact Inter CPA to learn more and schedule a consultation.
References:
H.R. 1 – One Big Beautiful Bill Act (House Committee on Rules) https://www.congress.gov/event/119th-congress/house-event/118300
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