Proposed Tax Changes Will Affect Non-Profit Fundraising

When House Ways and Means Chairman Dave Camp released the discussion draft of the “Tax Reform Act of 2014”, he did not exempt charities and other nonprofits from the proposed changes. While no one expects the Act to be enacted in its current form, many of the proposals are expected to be included in future tax legislation.  Because of the impact of these changes on exempt organizations, nonprofits should stay aware of the progress of the legislation.

Parts of the proposed legislation will directly affect how nonprofits raise funds from corporations by significantly increasing the types of revenue that would be taxable to non-profits. For example, currently, royalties from licensing of a nonprofit’s name or logo to a for-profit entity are not subject to unrelated business income tax.  Under the proposed legislation, fees from the licensing of a nonprofit’s name or logo would become taxable income.

Because advertising has always been subject to unrelated business income tax, the proposed legislation widens the definition of advertising by limiting the benefits that nonprofits can provide to corporate sponsors. Sponsorships for any one event in excess of $25,000 will be subject to additional scrutiny. In certain cases, the benefits received by these larger sponsors will no longer be able to increase as the amount of the sponsorship increases.

The Act also changes the treatment of research income, only allowing the income exclusion for research that is freely shared with the public at large.  Removing this exclusion will impact university programs that perform medical and other research for corporations.

A copy of the Act in its entirety is available at https://www.jct.gov/publications.html.  Numerous other provisions that affect nonprofits will be the topic of future articles.  If you have questions, please contact Anders for more information.