Tax Alert: Guidance for new UBIT law

IRS Released Interim Guidance and Transition Rules for New UBIT Law

The Tax Cuts and Jobs Act of 2017 added a new section 512(a)(6) to the Internal Revenue Code. Section 512(a)(6) requires nonprofits with more than one source of unrelated business income (UBI) to calculate taxable income separately with respect to each trade or business. The new law did not explain how to segregate different lines of business. IRS Notice 2018-67 published on August 21 provided interim guidance nonprofits can rely on pending publication of proposed regulations. Here are the key highlights of the notice.

  • Nonprofits should rely on a reasonable good faith judgement to identify separate unrelated trades or businesses. A reasonable good-faith interpretation incudes using North American Industry Classification System (NAICS) 6-digit codes. This guidance doesn’t apply to investments in partnerships.
  • An exempt organization may, under the interim rule, aggregate all partnership interests as well as various trades within each partnership and treat the aggregate group of qualifying partnership interests as a single trade of business if certain tests are met with regards to each partnership interest.
  • Inclusion of value of qualified transportation fringe benefits in UBI is not subject to section 512(a)(6).

Hood & Strong’s exempt organizations tax group will discuss the new guidance extensively during our EO Tax Update webinar on September 27. Please follow the link below to register.

Final Regulations on Substantiation Requirements

The IRS issued final regulations for charitable contribution substantiation and reporting pursuant to the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006.

These final regulations provide the substantiation requirements for contributions of more than $500, new definitions of qualified appraisal and qualified appraiser, and recordkeeping requirements for all cash contributions.

The following is a quick reference chart of the substantiation requirements for noncash contributions.

Noncash Substantiation Requirements $250 – $500 $501 – $5,000 $5,001 – $500,000 $500,001 or more
Contemporaneous written acknowledgment X X X X
File Form 8283, Noncash Charitable Contributions, with the tax return X X X
Obtain a qualified appraisal X X
Attach a copy of the qualified appraisal to the tax return X

A qualified appraisal means one that is:

  • Treated as a qualified appraisal under regulations or other guidance prescribed by the Secretary, and
  • Conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed by the Secretary.

Click here to read the Federal Register Updates.