Protecting Our Congregations from Additional Taxes and Regulatory Burdens

 
Recently, the Religious Action Center submitted a letter to Congress urging the repeal of a new tax provision on transportation benefits that would harm nonprofits across the country, including congregations and other institutions within the Reform Movement. We believe it is important to stand up against detrimental polices which unnecessarily entangle government with religion and threaten our ability to build a vibrant Jewish community.

Under the United States tax code, 501(c) nonprofit organizations such as houses of worship, schools, advocacy groups, and private foundations are generally exempt from federal income tax. One major exception to this rule is the unrelated business income tax (UBIT), which nonprofits must pay on business activity that is not related to the organization’s tax-exempt mission. For example, a university might generally be exempt from federal taxes due to its educational purpose, yet a university-owned coffee shop would be required to pay UBIT, because selling coffee is distinct from the university’s academic goal.

Signed into law just over a year ago, the Tax Cuts and Jobs Act of 2017 expanded the scope of unrelated business income taxes on nonprofits, including houses of worship. A little-known provision called Section 512(a)(7) requires nonprofits to pay a new 21 percent UBIT on employer-provided transportation benefits, including but not limited to employer-owned parking lots, public transit cards, and passes for third party parking lots. Among many effects, this new provision would require our congregations, camps, and religious schools to pay taxes simply because they provide parking spots for clergy and staff outside their buildings.

This tax is both harmful and unnecessary. The tax would divert vital financial resources away from the missions of Reform Jewish institutions. Our synagogues, camps, and schools should be allowed to focus on strengthening congregations, providing audacious hospitality, repairing the world, and investing in the Jewish future, not on providing additional revenue for the federal government. The new provision could also create administrative burdens, particularly for smaller congregations who have intentionally avoided unrelated business activities and have never filed UBIT tax forms before. And perhaps most importantly, transportation benefits should not be subject to UBIT in the first place. Nonprofits should rightfully pay taxes for activities outside their missions, but transportation benefits play a direct role in allowing staff to accomplish the nonprofit goals.

While the new tax provision did not gain much attention over the past year, the IRS released interim guidance on the provision earlier this month and brought this issue back to the forefront of the religious and secular nonprofit community. As a result, we submitted a letter to multiple United States Senators highlighting the impact on the Reform Jewish community and urging a full legislative repeal of the provision. We implore Congress to abolish this tax and allow all nonprofit organizations to continue their important work unimpeded.  You can read our letter here.

Photo by rawpixel on Unsplash