President Trump’s proposed One Big Beautiful Bill, which the House of Representatives passed last week, contains several provisions applicable to nonprofit organizations and their donors. While the Senate could still revise the bill, among the highlights are increases to the endowment tax for private colleges and universities and the net investment income tax, which applies to private foundations.
Notably absent from the bill is the resurrection of last fall’s HR 9495, which attempted to provide a process for the Secretary of the Treasury to revoke the tax-exempt status of an organization that has provided “material support or resources,” as defined under 18 U.S.C. 2339B(g)(4), to a “terrorist organization” defined in Code Section 501(p). Also absent was a proposed tax (as unrelated business taxable income) on royalties received in connection with the sale or lease of a nonprofit’s name and logo.
A summary of the provisions as passed by the House is below:
- Charitable Deductions for Non-Itemizers — The bill extends the charitable deduction allowed for non-itemizers through 2029.
- Corporate Donations — The bill limits the deductibility of charitable contributions by corporations. Specifically, the bill provides that charitable contributions by corporations can be deducted to the extent the contributions, in the aggregate, exceed 1% of the corporation’s taxable income. The deduction is then capped at 10% of the corporation’s taxable income, with any disallowed carried forward for up to five years.
- College Endowment Tax — The bill modifies the 1.4% endowment tax currently applicable to private colleges and universities by proposing tax brackets. The applicable tax would be determined by the size of the school’s “student adjusted endowment,” which represents the school’s investable assets divided by the number of tuition-paying students attending the school. State colleges and universities would continue to be exempt from the endowment tax, and the bill also adds a new exemption for certain religious colleges and universities. The proposed endowment tax brackets are:
"Student Adjusted Endowment" Size/Proposed Tax Rate
- $500,000 to $750,000/1.4%
- $750,000 to $1,25 million/7%
- $1.25 million to $2 million/14%
- Over $2 million/21%
- Net Investment Income Tax — The bill also modifies the net investment income tax paid by private foundations. Currently, private foundations pay a 1.39% tax on their investment income. The bill would implement the following tax brackets based on the total size of a private foundation’s assets:
Foundation Assets/Proposed Tax Rate
- $50 million or less/1.39%
- $50 million to $250 million/2.78%
- $250 million to $5 billion/5%
- Over $5 billion/10%
- Unrelated Business Taxable Income — The bill provides that amounts paid for certain employee fringe benefits will be treated as unrelated business taxable income.
- Excess Compensation — The bill expands the applicability of excise taxes on employees receiving over $1 million in compensation. Previously, the excise tax only applied to employees who were one of the five highest compensated employees of the nonprofit. Under the bill, the excise tax would apply to any employee of the nonprofit.
It is now the Senate’s job to revise and finalize the bill, and some or all of the above provisions affecting nonprofits may be modified or even struck from the final bill. Stay tuned for updates.
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