When it comes to unrelated business expenses, the Internal Revenue Service appears close to releasing proposed regulations that were part of the 2017 Tax Cuts and Jobs Act. The new rules could mean reporting changes that might be complicated, specifically for larger nonprofits that receive revenue outside of normal fundraising programs.
Nonprofit Colleges and Universities Most Affected
The regulations could hit colleges and universities the hardest because these entities generate revenue from their sports programs and sales of logoed clothing. The IRS has been particularly concerned with nonprofits who are possibly reporting losses in one form of income to offset income from another, essentially zeroing out or showing a total loss to avoid paying taxes. The regulations would require nonprofits report this income separately on the 990-T.
Possible Help for Smaller Nonprofits
In 2018, several organizations weighed in on the proposed changes trying to persuade the IRS to grant an exception to ANY nonprofit reporting less than $100,000 in unrelated business income. That exemption could still eventually happen.
Nonprofits are advised to continue doing what they have been doing with unrelated business income since 2018: keep separate books as well as profit and loss statements for those unrelated business activities and maintain a close eye on recording indirect expenses incurred in those revenue-generating programs.
There is no word yet on when the final regulations will be released but insiders say it could be coming as soon as March 2020.
When rules for tax-exempt entities change, your trusted nonprofit accounting professional can help guide you in navigating them. Numbers 4 Nonprofits is available to help. When your accountant is an expert in nonprofit accounting, your time is freed to focus on your mission!