The Senate voted yesterday to begin formal negotiations with the House of Representatives to reconcile their two versions of the Tax Cuts and Jobs Act, a bill that seeks to make sweeping changes to federal tax law. Republicans are racing to enact a final bill before Christmas. Under both versions of the bill, tax-exempt organizations would face new burdens and taxes in order to pay for tax cuts elsewhere. In particular, the proposed changes would:
- make it harder for larger tax-exempt organizations to attract and retain top talent, by imposing a new 20% tax on annual compensation of over $1 million per year paid to any of their top 5 highest paid employees (including certain severance payments);
- reduce revenues, by eliminating certain tax incentives to make charitable donations;
- eliminate critical low-cost financing for hospitals and universities from tax-exempt bonds;
- make certain employee benefits more expensive, by taxing organizations that pay certain fringe benefits and taxing employees on certain employer-provided education and tuition assistance; and
- add new pressures on Section 501(c)(3) organizations to support or oppose political candidates, by loosening the current absolute prohibition against political activity.