While some of the most threatening proposals previously under discussion—such as changes to 501(c)(3) eligibility or repeal of municipal bond tax exemption—were left out of the latest House tax package, several provisions remain.
Treasury Empowered to Revoke Tax-Exempt Status
A provision (Section 112209) provides the Secretary of the Treasury broad new authority to revoke the tax-exempt status of any organization alleged to have provided “material support” to a designated terrorist organization in the past three years. While organizations would receive notice of the proposed designation, there is no requirement that Treasury provide full documentation or explanation, and the burden would fall on the organization to prove its innocence.
Though the intent is to ensure tax-exempt status does not shield illegal activity, there is concern that this provision opens the door to subjective and politically motivated decisions, especially without robust procedural safeguards.
Steep Increases in Foundation Investment Taxes
Another section (112022) would dramatically increase the excise tax on net investment income for private foundations with more than $50 million in assets. Rates would jump from the current 1.39% to as high as 10%, depending on asset level. This change could affect philanthropic capacity of major foundations at a time when nonprofit health and aging services rely heavily on charitable support.
A similar increase would apply to certain private colleges and universities, though religious institutions are exempted.
Other Nonprofit-Specific Changes
These changes could increase the tax burden and compliance requirements for nonprofit organizations that are already operating on tight margins.
Charitable Giving Incentives—Mixed News
On a more positive note, the bill includes a temporary universal charitable deduction (Section 110112), allowing non-itemizing taxpayers to deduct modest cash donations—up to $150 for individuals, $300 for couples—through 2028. This is a scaled-back version of the Charitable Act that LeadingAge has supported.
However, a new restriction for corporate donors (Section 112028) would impose a 1% floor for charitable deductions relative to taxable income, which could reduce corporate giving overall.
What’s Next
LeadingAge Ohio will continue monitoring the progression of this package closely and will work with our national partner to advocate for the removal or revision of provisions that threaten the financial health and mission of nonprofit providers. We’ll share additional updates as the legislation advances.
If you have questions about how these changes could affect your organization, please reach out to the LeadingAge Ohio policy team.
Read more about what was included in the House Ways and Means Committee’s May 14 tax legislation package here.