CUNA Calls for UBIT Delay Until IRS Provides Clarification

The Internal Revenue Service and Treasury should delay new Unrelated Business Income (UBIT) taxes until the IRS issues clear and final rules, CUNA and other organizations wrote to the IRS. CUNA wrote to the IRS to specifically request a delay in the implementation of the new taxes.

The Tax Cuts and Jobs Act (TCJA) requires tax-exempt organizations currently subject to UBIT (which includes state-chartered credit unions) to pay a 21% tax on certain employee fringe benefits, such as transportation and parking benefits.

In early October, the IRS released more interim guidance regarding the meals and entertainment UBIT provision in the TCJA, noting that not-for-profit businesses may only deduct meals and entertainment as a business expense if they have unrelated business income to deduct these expenses against.

“We request a delay in the effective date for at least a year, and further until Treasury and the IRS have issued guidance explaining how to implement this new tax,” the letter reads. “This new law is forcing many tax-exempt employers, including churches and other houses of worship, to file federal Form 990-T for the first time regardless of whether they engage in any unrelated business activity.

Many organizations have missed filing deadlines or, not knowing how to comply, have misfiled IRS Form 990-T. A delay of this provision would hold these tax-exempts harmless until they have clear instructions on how to file,” it adds.

CUNA believes the delay will give not-for-profit entities the clarity and time needed to correctly implement the changes, buy or update needed software and time to train staff on the new changes.

While CUNA prefers a full repeal of the meals and entertainment provision, its letter to the IRS requests the agency consider:

  • A delay in the effective date of this provision to provide organizations time to establish new accounting systems to value and track such benefits, which have never been subject to tax before;
  • A carve-out for tax-exempts required by law to provide parking and/or other qualified transportation benefits to employees; and
  • That lawmakers to encourage the Treasury Department to issue guidance on valuing these benefits, which in many cases have no readily ascertainable value.

Additional details on the TCJA and UBIT can be found on CUNA’s Removing Barriers Blog.