Prospects for tax legislation affecting exempt organizations in the 119th Congress

The Trump Administration is urging the 119^th Congress to enact substantial tax reform, which could include measures affecting tax-exempt organizations.

Measures included in four bills relating to tax-exempt organizations that were approved by the House Ways and Means Committee last year (read TaxNewsFlash) could be considered for inclusion in tax legislation in the 119^th Congress. These included proposals to increase detailed public reporting of foreign grants, as well as provisions relating to donor disclosures. 

Other legislative proposals in the 118^th Congress would have raised tax revenue from colleges and universities. For example, S. 3465, which was introduced by Senator Tom Cotton (R-AR), would have imposed a 6% excise tax on the value of the assets of certain public and private colleges and universities. Others would have expanded the section 4968 excise tax on the net investment income of certain colleges and universities, either by expanding the number of institutions subject to the tax (i.e., H.R. 8913) or by raising the tax rate (currently 1.4%) for some or all institutions subject to the tax (i.e., S.3514, which was introduced by then Senator J.D. Vance (R-OH)). And last month, Representative Troy Nels (R-TX) introduced H.R. 446, which would raise the section 4968 tax rate to 21%.

More general legislative proposals, such as proposals to repeal some or all of the clean energy credits enacted in the Inflation Reduction Act, would also impact tax-exempt organizations that gained access to these credits for the first time through section 6417’s “direct pay” (or “elective pay”) mechanism. Read TaxNewsFlash

Additionally, H.R. 7024 included a proposal with bipartisan support to repeal the employee retention credit (ERC) effective for claims filed after January 31, 2024, that could resurface, denying credits to organizations that filed claims after such date.

Washington think tanks have also proposed tax changes that could adversely affect exempt organizations. For example, in a June 2024 report the Cato Institute proposed a number of tax changes that lawmakers looking to raise revenue might consider, including:

• Repeal tax credits for the energy sector
• End the credits for low-income housing and historic rehabilitation
• Eliminate exempt status for credit unions and for activities where there are clear for-profit competitors, noting televised NCAA sporting events and, potentially, tax-exempt hospitals
• Eliminate educational subsidies, including the American Opportunity and Lifetime Learning Credits,  the exclusion of scholarship and fellowship income, the deduction for interest on student loans, the exclusion of income from the discharge of student loan indebtedness, and the exclusion of employer provided educational assistance
• Repeal the charitable contribution deduction for both individuals and corporations

For more information, KPMG LLP hosted a webcast that discussed the implications of a new administration in the White House and Congress from a tax-exempt perspective. Watch the replay
 

To discuss any of these proposals, contact your usual KPMG tax professional or one of the following Washington National Tax professionals:

Ruth Madrigal | ruthmadrigal@kpmg.com

Preston Quesenberry | pquesenberry@kpmg.com