Tax hitting churches and nonprofits eliminated under 2020 budget deal

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BY DAVID LIGHTMAN
TRIBUNE NEWS SERVICE

WASHINGTON – Your pastor can park at his special space again without having to pay the federal “church tax.” 

And your local charity can spend more time helping people rather than trying to figure out how to navigate federal tax forms. 

Congress has conceded it made a mistake when it slipped the tax into a 2017 bill that was supposed to cut taxes. So as part of the fiscal 2020 budget agreement, the tax is gone.

In 2018 and 2019, the government imposed a 21% tax on parking benefits provided to employees by nonprofit and religious institutions, creating a financial and logistical nightmare for churches, schools and others across the country. 

“Some eliminated parking and transit pass benefits. Others had to add tens of thousands of dollars to their annual budgets,” said Jan Masaoka, chief executive officer of the California Association of Nonprofits. 

Burden for nonprofits 

Some had to get creative. When one Los Angeles area nonprofit stopped reserving a space in its parking lot for its lead staff, a woman would put flowerpots around the parking space to save it. 

Some found they were spending more money to comply than they were paying in tax. 

The Mississippi Alliance of Nonprofits and Philanthropy reported that it cost $400 in accountant fees to determine a tax liability of $17. 

The repeal will mean refunds to those who have paid the tax. But it still has meant a huge burden for nonprofits. 

“Every nonprofit with employees who park at their place of work had to analyze this. They probably had to spend hundreds of dollars and hours of someone’s time to see if it applied,” said Mike Batts, whose Orlando-based accounting firm specializes in nonprofits. 

‘A raw nerve’

The repeal creates a potential new burden: Assessing how much of a refund is due. Batts figured that it could be costly again to figure that out, so many firms may just forget about it. 

Religious institutions and nonprofits usually pay no income tax since they have no taxable income. And what made little sense to many was that the income tax was on an expense. 

“For some churches, synagogues, and mosques, this tax filing may have been their very first communication with the IRS,” David Thompson, vice president of public policy at the National Council of Nonprofits, told a congressional hearing last year. He called the tax a ‘raw nerve.’” 

Purpose of tax

Nonprofits were stung particularly hard, because religious institutions could get a break if a majority of their parking spaces were for public use, a common practice. But nonprofits usually don’t fit that requirement. 

“The typical charity is not geared for large audiences,” Batts said. 

The tax was created quietly as a way to partly offset the massive 2017 tax cuts. 

The church tax not only was poised to raise considerable revenue — an estimated $1.8 billion over 10 years, according to Congress’ Joint Committee on Taxation — but also fit snugly into the bill’s purpose: To cut reliance on smaller tax breaks while simplifying how businesses and individuals are taxed. There’s no estimate of how much has been paid in such taxes so far. 

Little notice

Republicans, who wrote the 2017 tax bill, wanted to curb the break businesses received for giving employees fringe benefits such as parking. Doing the same for nonprofits seemed reasonable. 

But few in Congress, or anywhere else, seemed to notice during the writing of the legislation what was happening. Senate Finance Committee Chairman Chuck Grassley, R-Iowa, told McClatchy nonprofits were included because the bill’s authors were “scraping together a million here and a billion there.” 

Once it became clear what was happening, nonprofits and their congressional allies mobilized. House Majority Whip Jim Clyburn, a South Carolina Democrat, led an effort to repeal the tax. 

Groups balked

Besides the expense, what was concerning is that “requiring churches to file these forms was seen by money as the camel’s nose under the tent of government intrusion,” said Galen Carey, vice president of government relations at the National Association of Evangelicals, which represents 40 denominations and 45,000 congregations. 

A broad coalition of religious and nonprofit groups pushed hard for repeal. By congressional standards, it didn’t take long. 

“You don’t often see legislatures say they made a mistake,” Masaoka said.

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