Is Your Nonprofit Impacted by Federal Tax Changes?

Minnesota’s nonprofits are part of strong, thriving communities so it is important that our tax policy create strong partnerships with government. However, changes in federal laws are creating confusion and increasing unrelated business income tax (UBIT) for nonprofits, which is disrupting this partnership.

If your organization is impacted by UBIT changes, MCN’s policy team would like to connect with you.

Parking and Transportation Benefits

Federal tax changes now charge nonprofits UBIT for parking and transportation employee benefits, which impact how nonprofits recruit and retain talent.

Nonprofits could be impacted if they:

  • Offer employees a pre-tax way to pay for their parking and/or transportation such as purchasing a bus pass to get from home to work.
  • Pay for employees (or for a portion) of an employee bus pass.
  • Pay for parking passes for employees to park in a nearby parking facility.
  • Note: This does not include costs related to an employee driving from the office to another work-related meeting.

Requirement to Compute UBIT Separately

Historically, organizations have been able to use losses from one unrelated business activity to offset the gains from another unrelated business activity. Federal tax changes will now prohibit nonprofits from doing this, resulting in increased taxes for nonprofits.

Nonprofits may be impacted if they have more than one unrelated business income stream such as corporate sponsorships or items sold in a gift shop unrelated to the organization’s mission.

What now? – We need your help!

MCN is working in partnership with national organizations to request the IRS delay implementation of these federal changes, but there is no indication from the IRS that a delay will occur.

In Minnesota, legislators still need to decide if the state should also adopt these changes. To help prevent the state from conforming to these federal provisions, MCN is looking for stories of nonprofits to share with legislators.

Ask your tax professional/auditor or finance team if your nonprofit is impacted.

What types of stories are we looking for?

  • Confusion: The changes have caused a lot headaches for nonprofits because of the lack of guidance from the IRS.

    Example: A nonprofit in downtown Minneapolis has hired multiple tax experts who are giving conflicting advice on if the parking spots the organization pays for in a parking lot will now be taxed under UBIT.

  • Impact on employees: Employees are impacted if an organization decides to reduce or eliminate transportation and parking benefits because of this new tax.

Example: In order to save money, a hospital employee pays for their bus pass on a pre-tax basis to get to work. Since this pre-tax compensation reduction now has negative tax consequences, the hospital decides to no longer offer this option to the employee, causing the employee to pay more for their bus pass.

  • Experience UBIT for the first time: Some nonprofits will be paying UBIT for the first time and have more paperwork to file with the IRS.

Example: A house of worship now has to file certain tax forms for the first time because they offer parking and transportation benefits to their employees.