Organizations subject to Unrelated Business Income (UBI) Tax at corporate rates will now pay a flat tax rate of 21%. However, for taxable years beginning after December 31, 2017 multiple UBI activities can no longer be aggregated. Instead, the income or loss from each activity is separately calculated and loss activities can no longer offset profitable activities.
If possible, tax-exempt organizations with multiple unrelated activities may consider transferring such activities to a taxable subsidiary to reduce or eliminate the impact of this new provision.
Another change also affects the calculation of Unrelated Business Taxable Income. The value of certain employee fringe benefits, such as employer provided athletic facilities, parking facilities and transportation benefits are now considered unrelated business income to the tax-exempt organization providing such benefits. This change applies to amounts paid or incurred after December 31, 2017.
Finally, for losses arising in taxable years beginning after December 31, 2017, for most corporate taxpayers, net operating loss deductions are limited to 80% of taxable income computed without regard to the NOL deduction.
This alert provides a general overview of certain provisions in the Tax Cuts and Jobs Act of 2017. However, additional Treasury guidance, including Regulations, may be necessary prior to enacting any of the strategies mentioned above. If you have any questions or would like further assistance, please contact our Albany office at (229) 883-7878 or our Atlanta office at (404) 220-8494.