An unnoticed provision in the Republicans’ tax reform plan is about to cause all sorts of problems for nonprofits in America, particularly for churches. Congress should repeal this provision immediately as part of its overall end of year budgeting. This provision imposes an income tax on churches.
The newly added Section 512(a)(7) of the Internal Revenue Code states, in part: “Unrelated business taxable income of an organization shall be increased by any amount for which a deduction is not allowable under this chapter by reason of section 274 and which is paid or incurred by such organization for any qualified transportation fringe, any parking facility used in connection with qualified parking, or any on-premises. . . The [Treasury] Secretary shall issue such regulations or other guidance as may be necessary or appropriate…”
What does this mean in English? As the Ethics and Religious Liberty Commission points out, the law “requires tax-exempt organizations to file federal income tax returns and pay unrelated business income tax (UBIT) on the cost of parking provided to employees. Filing a return is required even if the organizations do not actually conduct any unrelated business activities. This is a significant change in the treatment of charitable organizations.”
But it is not just the cost of parking that will be treated as income to churches. If churches and other nonprofits cover the costs of mass transit for their employees, they will get taxes on that as well. In other words, if a church encourages its employees to use a metro system, the church will have to pay an income tax on the benefit it provides its employees. This is ridiculous and needs to be repealed immediately. It not only effectively imposes an income tax on non-profits, but does so for incentivizing their employees’ use of mass transit, etc.
Congress needs to not impose an income tax on churches and other nonprofits. They must repeal this provision immediately. They can do so by passing H.R. 6460, the LIFT for Charities Act, authored by Rep. Meadows in the House and Senator Lankford in the Senate.