DEMA President and CEO, Tom Ingram, Travels to Washington on Non-Profit Tax Issues
Tuesday, April 3, 2018
|Diving Equipment and Marketing Association (DEMA) President Tom Ingram, Senator Dianne Feinstein, Joy Alafia, President, Western Propane Gas Association (WPGA).
On March 22, a delegation of association executives, including DEMA President Tom Ingram traveled to Washington DC to meet with Senators and Representatives to discuss tax issues for non-profits arising out of the massive tax overhaul signed into law by President Trump on December 22, 2017. The California delegation was part of Capitol Hill visits organized through the American Society of Association Executives (ASAE). Ingram serves on ASAE’s Legislative Committee.
Ingram met with staff and lawmakers in the offices of California Senators Dianne Feinstein and Kamala Harris, as well as with California Representatives Karen Bass, Ami Bera, Judy Chu, John Garamendi, Doris Matsui, Jackie Speier, and Maxine Waters.
Throughout the legislative process, DEMA, ASAE and other associations monitored provisions in the tax reform bill that would impact 501c (non-profit) organizations of all kinds, including many of DEMA’s members. Through these efforts, several harmful provisions were stripped from the bill, including:
Taxation of royalty income: This provision was in the original Senate bill but was removed after opposition from the association community. Associations opposing this provision contended that “royalties” should not be taxed when the organization has entered into a licensing arrangement for use of its name or logo but is not actively involved in the marketing or administration of the product or service connected with the arrangement.
Royalties are a significant source of non-dues revenue or non-contributed revenue that can be reinvested in education, skills training, standard-setting, research and other activities critical to the mission of a tax-exempt entity, such as DEMA. Thanks to the advocacy work on behalf of DEMA’s non-profit members, passive income from royalties will not be subject to Unrelated Business Income Tax (UBIT).
Non-qualified deferred compensation plans: This provision was originally in both the House and Senate bills and would have eliminated 457 plans for associations and other nonprofit employers. DEMA and other associations made the case that these deferred compensation arrangements are offered to many employees of tax-exempt organizations as a means of supplementing their retirement income. Since nonprofit employers can’t offer performance stock options to key employees, 457 plans are an important benefit in attracting top employee talent. The provision was removed from both bills before passage.
Intermediate sanctions: This provision was originally in the Senate bill and would have applied intermediate sanction rules to 501c groups, giving the IRS the power to determine what constitutes “reasonable” employee compensation and benefits, rather than having this determination made by a governing non-profit Board or committee. This provision was removed from the Senate bill before passage.
Noteworthy Provisions Included in Final Bill:
Separate computation of UBIT: This provision in the bill requires that unrelated business taxable income be separately computed for each business activity. In other words, associations are prevented from offsetting losses from one business with income from another business. DEMA and other associations are currently reviewing how this will impact non-dues revenue, with the goal of continuing to offset costs and contribute additional funding to diving industry-related projects and programs.
Charitable contributions: Although DEMA is not a charitable tax-exempt organization, many DEMA member organizations fall into this category. The new tax bill increases the adjusted gross income (AGI) limit on the charitable contributions deduction from 50% to 60% for cash gifts. However, the final bill roughly doubles the standard deduction to $12,000 for individuals and $24,000 for couples. With a higher standard deduction, fewer taxpayers will itemize their deductions on their tax returns and therefore won’t receive a benefit for giving to charities. This provision may reduce charitable giving, and charitable organizations should review the impact of this issue on their revenue streams.
Local lobbying expenses: The bill eliminates the deduction for lobbying expenses regarding legislation before local government bodies. As a result, these expenses will need to be included in the calculation of non-deductible membership dues or proxy tax liability. DEMA currently notifies members of the percentage of membership dues accounted for by all state and federal lobbying, but this provision will make county, and other local-level lobbying part of that non-deductible expense.
Johnson Amendment: A provision in the House bill would have effectively repealed the Johnson Amendment, which prevents 501c (3) groups from participating or intervening in political campaigns. The provision was removed from the final bill because it conflicted with the Senate’s Byrd rule, which prevents reconciliation bills from containing provisions that aren’t fiscal in nature. Efforts to repeal the Johnson Amendment to allow 501 c (3) leaders to engage in political speech are expected to continue.
Excise tax on investment income of private colleges and universities: The tax bill imposes a 1.4% excise tax on the net investment income of private colleges and universities that have more than 500 full-time equivalent students and assets of at least $500,000 per full-time equivalent student. Several private universities are DEMA Members and may be impacted by this provision.