More New Tax Legislation

February 15, 2018

Authored by: Keith Kehrer

While the Bipartisan Budget Act of 2018 (the “Act’) focused on spending and the budget, it did include two provisions impacting charities.

First, the Act amends the recently adopted Section 4968(b)(1), which now imposes a 1.4% excise tax on certain colleges and universities, to clarify that the student portion of the test refers to “tuition-paying” students.

Second, the Act adds new subsection (g) to the excess business holdings rules of Section 4943, often referred to as the Newman’s Own exception (the organization which we understand was behind the proposal). New Section 4943(g) provides an exception for certain holdings of a private foundation which, among other requirements, where the foundation holds 100% of the voting stock at all times during the tax year, the foundation acquires its interest in the business other than by purchasing it (e.g., by gift), the business distributes all of its net operating income for any given tax year to the private foundation, and there is independent operation (i.e., no substantial contributor to the foundation or family member is a director, officer, trustee, manager, employee or contractor of the business, at least a majority of the board of directors of the private foundation are persons who are not directors or officers of the business or family members of a substantial contributor to the private foundation, and there is loan outstanding to a substantial contributor).  As noted in a prior blog entry, this provision was proposed but ultimately removed from the Tax Cuts and Jobs Act