Blog Posts Tagged With Tax-Exempt

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Comparison of the Final House and Senate Bills

While the last-minute changes made to the Senate Bill brought the House and Senate Bills closer together, a number of important differences remain.  The House and Senate will attempt to hammer out these differences over the next few weeks in conference committee. In the meantime, we have prepared a comparison of the more salient provisions of the two bills.

You can view the full text of the bills on our House Bill Navigator and Senate Bill Navigator. We also ran a comparison of the final Senate Bill against the initial legislative text, which is available here.
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House and Senate Proposals Affecting Exempt Organizations

The Tax Cuts and Jobs Act passed by the House and the Senate Mark approved by the Senate Finance Committee each contain numerous proposals that would affect tax-exempt organizations, in some cases materially. Below we highlight some of the provisions that are of relevance to public charities and certain other exempt organizations.

Excise tax on “excessive” executive compensation.  Both the House Bill and Senate Mark would introduce a new 20% excise tax on compensation above $1 million paid by tax exempt organizations to their highest paid employees in any tax year after December 31, 2017—the top five employees under the House bill, and the top three under the Senate plan.
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Senate Mark at a Glance

The Senate Finance Committee Chairman’s Mark (Senate Mark) released last night diverges sharply in many respects from the House Bill.  Although in summary form, the Senate Mark describes a comprehensive tax reform proposal that will take some time to analyze. In the meantime, the table below summarizes key features of the Senate Mark, together with a comparison to the final House Bill.

We have also released an initial version of our Senate Bill Navigator, a hyperlinked version of the Senate Mark built to ease your navigation of its text, which you can find here.

Corporates.  As expected, the Senate Mark calls for a permanent reduction in the corporate tax rate to 20%, with implementation delayed until 2019.
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Brady’s Second Amendment at a Glance

Chairman Brady released another manager’s amendment to the House Bill this afternoon. This amendment was promptly approved by the House Ways and Means Committee 24-16 and included in the House Bill reported to the floor.

We have incorporated this amendment into the text of the Chairman’s Mark and have generated a PDF comparison showing the revised sections, which you can find here. Click here for a comparison that shows the entirety of the bill’s text. Both comparisons are against the bill as amended on November 6th. We will follow up in the morning with an updated Tax Bill Navigator, reflecting the final bill as reported to the House floor.
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The House Tax Bill Provisions Affecting Private Equity

The House tax bill contains several provisions that could significantly affect private equity sponsors, investors and portfolio companies. Below we have highlighted a number of these proposals, including discussions of:

Carried Interest. The House bill generally would limit the favorable taxation of carried interest to investments that have a holding period of more than three years, and treat carried interest attributable to gains on investments held for three years or less as short-term capital gain (taxed at the rates applicable to ordinary income).
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Brady’s Amendment at a Glance

Last night Chairman Brady released the first set of amendments to the Chairman’s Mark released last Friday. We have incorporated these amendments into the text of the Chairman’s Mark and have generated a PDF comparison showing the revised sections, which you can find here.  Click here for a comparison that shows the entirety of the bill’s text.

In addition to modifying the earned income tax credit, the Chairman’s amendment limits the favorable taxation of “carried interest,” so that long-term capital gains rates will apply only to gains from investments that have been held for more than 3 years. To address concerns around the House bill’s treatment of deferred compensation in the context of start-ups, the amendment also adds a provision that would defer the recognition of income on the exercise of compensatory options or the settlement of restricted stock units issued to certain employees of private companies for up to five years (in limited circumstances).
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Weekly Roundup: Key Posts and What’s on Deck This Week

Last week was a busy week at Tax Reform And Transition. House Republicans released text of a tax reform bill on Thursday (view the full bill through our Tax Bill Navigator), followed by an official Chairman’s Mark on Friday. Late Friday night, the Joint Committee on Taxation released an official summary of the Chairman’s Mark, together with their assessment of the revenue effects and distributional effects of the Chairman’s Mark.

You can read our grid summarizing the key provisions of the bill here. Here’s a round up of the tax reform topics covered in our more detailed posts so far:


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House Tax Bill Upends Key Executive Compensation Rules

The House tax reform bill released yesterday (as revised today) effectively shuts down nonqualified deferred compensation and penalizes compensation paid to top earners at public companies and tax-exempt organizations. If enacted in its current form, the bill is likely to have a significant impact on how companies and tax-exempt organizations pay their executives and key employees.

Nonqualified Deferred Compensation.  Current law permits employees and other service providers to defer compensation, subject to compliance with Section 409A (e.g., timely elections, payments made only on specified dates or permissible events). The bill effectively repeals Section 409A and adds Section 409B, which all but eliminates the ability to defer compensation, and which significantly expands how deferred compensation is defined.
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The House Tax Bill at a Glance

The draft legislative text released today comes in at over 400 pages, and will take some time to analyze.  In the meantime, the table below summarizes key features of the bill.  In addition, a section-by-section summary prepared by the House Ways and Means Committee is available here.  We have also released an updated version of our Tax Bill Navigator, a hyperlinked version of the bill built to ease your navigation of its text, which you can find here.

As expected, the bill calls for an immediate and permanent reduction in the corporate tax rate to 20%.  The bill significantly limits the deductibility of interest expense for certain businesses, introducing a cap equal to 30% of earnings before taxes, depreciation and amortization, and limits other deductions but provides for immediate expensing of depreciable assets on a temporary basis.  
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Updates on Tax Reform and the Tax-Exempt Sector

President Trump and Congress have recently undertaken measures to preserve the ability of tax-exempt organizations to engage in limited forms of political speech, and efforts in Congress may signal a willingness to provide further relief to tax-exempt organizations.

The Presidential Executive Order.  On May 4, 2017, President Trump signed an executive order entitled “Promoting Free Speech and Religious Liberty” that directs the executive branch “to vigorously enforce Federal law’s robust protections for religious freedom.”  The executive order further instructs the Treasury Department, to the extent permitted by law, not to “take any adverse action against any individual, house of worship, or other religious organization” that discusses moral or political issues from a religious perspective, but only where such speech has not ordinarily been treated by the Treasury Department as the endorsement of or opposition to political candidates. 
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Tax Items in the Budget Bill

Late Sunday night Congress reached a budget deal that will keep the Federal government funded through the end of the fiscal year in September. The House and Senate are expected to vote on the package today or tomorrow (the House vote is scheduled for this afternoon) to ready it for President Trump’s signature before the end of the day on Friday to avert a government shutdown. The bill totals 1,600 pages (you can read the whole thing here.)

Here is a summary of the tax-related items:

  • The bill allocates a total amount of $11.2 billion to the IRS to fund various activities and operations.

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Tax Reform and the Tax-Exempt Sector

There’s a lot at stake for tax-exempt organizations in the current proposals for tax reform.

The Charitable Deduction.  In 2014, individuals contributed $258 billion to charity, more than 80% of which was donated by persons who itemized deductions and claimed a charitable contribution deduction.  President Trump’s tax reform plan and the House Blueprint would substantially reduce the percentage of taxpayers itemizing their deductions, from a current 30% to as low as 5%, and would cap the total value of itemized deductions for those who still claimed them.  The Charitable Giving Coalition, among others, is concerned that these changes would reduce the value of charitable giving and curtail charitable contributions. 
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