All Eyes on Tax Reform

By: Chris Vest

Will scrutiny of charities extend to associations?

Most lawmakers agree on the need for fundamental tax reform, although this month's elections will help shape which party platform is advanced next year. Republicans generally support a revenue-neutral overhaul of the tax code, while most Democrats believe that meaningful tax reform must include additional tax revenue.

Association leaders are closely watching to see what the first overhaul of the tax code since 1986 will hold. While the broad focus will be on simplifying the code, the tax-exempt sector is likely to encounter some scrutiny.

Clues as to how legislators might perceive the tax-exempt sector can be found in hearings held last spring and summer by the House Ways and Means Oversight Subcommittee, led by Rep. Charles Boustany (R-LA). The first hearing, on May 16, focused entirely on Section 501(c)(3) charitable organizations, including their operations and governance, Form 990 reporting requirements, and compliance with existing tax laws as enforced by the IRS.

A second hearing, on July 25, focused on the reasons for the "increasing organizational complexity" of public charities, including unrelated business income tax (UBIT) issues. Boustany cited universities and hospitals as examples of 501(c)(3) organizations with a wide range of exempt and commercial activities, and he questioned why the exemption for passive income exists for public charities and how the IRS determines whether UBIT is warranted.

While the focus of both hearings was on 501(c)(3) charities, any expansion of UBIT definitions and income categories could have a serious impact on all exempt organizations. ASAE is following these hearings to see if the subcommittee expands its interest to 501(c)(6) trade and professional associations.

Chris Vest is director of public policy at ASAE. Email: [email protected]