Tax Exempt & Government Entities

Tax Reform Provisions that Affect Retirement Plans, Tax Exempt Organizations and Governments

As the IRS implements this major tax legislation, check this page for updates and resources to learn how the Tax Cuts and Jobs Act (TCJA) affects retirement plans, tax exempt organizations and governments.

Retirement Plans

If you leave employment with an outstanding plan loan and do not repay it, a plan may reduce, or offset, your account balance by the unpaid portion of the loan. The unpaid balance of the loan that reduces your account balance is called the plan loan offset amount. A plan loan offset amount is treated as an actual distribution for rollover purposes and may be eligible for rollover. If eligible, you can roll over the offset amount to an eligible retirement plan.

Effective January 1, 2018, if the plan loan offset is due to plan termination or severance from employment, instead of the usual 60-day rollover period, you have until the due date, including extensions, for filing the federal income tax return for the taxable year in which the offset occurs.

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Effective January 1, 2018, a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA cannot be recharacterized. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans. 

Tax Exempt Organizations

Tax exempt organizations with more than one unrelated trade or business must calculate unrelated business taxable income separately for each trade or business.

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The Further Consolidated Appropriations Act, 2020 H.R. 1865 (Pub.L.116-94) passed on December 20, 2019, retroactively eliminated the increase in unrelated business taxable income on amounts paid or incurred for qualified transportation fringe benefits. This repealed provision was previously enacted as part of the Tax Cuts and Jobs Act, effective for amounts paid or incurred after December 31, 2017.

To claim a refund or credit of the UBIT reported on your Form 990-T for 2017 or 2018, you should file an amended Form 990-T within the time allowed for refunds. Find more Information on this refund process on IRS.gov.

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The IRS will provide estimated penalty relief to tax-exempt organizations that offer qualified transportation fringe benefits in 2018 and were not required to file a Form 990-T last filing season. Additionally, some tax-exempt organizations will not exceed the $1,000 threshold for filing a Form 990-T to pay the unrelated business income tax.

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The IRS issued proposed regulations on June 28, 2019, for determining the 1.4% excise tax that applies to the net investment income of certain private colleges and universities. The proposed regulations define several of the terms necessary for education institutions to determine whether the Section 4968 excise tax applies to them. For affected institutions, the guidance also clarifies how to determine net investment income.

The IRS issued final regulations on April 9, 2019 that specify the form of return and due date of this tax.

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Generally, the law imposes a new 21% excise tax on excess remuneration (over $1 million per year) to the five highest paid employees of an exempt organization. The IRS issued final regulations on April 9, 2019 that specify the form of return and due date of this tax.

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Tax-Advantaged Bonds

The law repealed the authority to issue tax-credit bonds and direct-pay bonds.  The repeal applies to new clean renewable energy bonds, qualified energy conservation bonds, qualified zone academy bonds, and qualified school construction bonds issued after December 31, 2017. The authority to issue recovery zone economic development bonds and build America bonds expired on January 1, 2011.

The law repealed the exclusion from gross income for interest on bonds issued to advance refund another bond. The repeal applies to advance refunding bonds issued after December 31, 2017. A bond is classified as an advance refunding if it is issued more than 90 days before the redemption of the refunded bonds.

Notice 2018-15 (PDF) provides that the IRS shall not process applications for, or issue allocations of, the remaining unused authority to issue new clean renewable energy bonds. The law repealed this provision, effective for bonds issued after December 31, 2017.