Tax-Exempt Provisions for Not-for-Profits

The proposed Tax Cuts and Jobs Act released Friday contains many proposed changes to the tax law that would significantly impact the tax- exempt sector. While the below is not an all-inclusive summary of the tax bill, these items more significantly impact 501(c)(3)’s of all kinds including colleges, universities, hospitals, long-term care facilities and other charitable entities.

  • A new 20% excise tax on tax- exempt organizations for amounts paid to employees in excess of $1 million. The tax appears to be limited to the five employees in the tax-exempt organization that are paid the highest.
  • The bill eliminates the tax exemption for interest earned on private activity bonds and advance refunding bonds. With an effective date of January 1, 2018, Tthe current proposed bill with an effective date of January 1 applies to private activity bonds as well as it also applies to any refunding of bonds that are currently tax- exempt. Assuming enactment, borrowers must refund eligible tax-exempt bonds before the end of the year or forego potential debt service savings from refunding bonds.
  • A 1.4% flat excise tax or private foundations investment income. Historically this has been either a 1% or 2% tax based on distribution history.


Amy Bibby
Office Managing Partner, Asheville
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