Do you understand how the Tax Cuts and Jobs Act (TCJA) of 2017 impacts reporting business income?  In the latest edition of the Removing Barriers blog, CUNA examines the Unrelated Business Income Tax (UBIT) provisions in the new law and provides a brief analysis that can help you determine what must be reported.

According to CUNA’s review:

  • Income at state-chartered credit unions that the IRS deems to be unrelated to the credit union’s tax-exempt purpose is subject to taxation, while federal credit unions are not subject to UBIT requirements because they are instrumentalities of the federal government and subject to restrictions on activities imposed by Congress.
  • Income that is subject to UBIT is defined as any net income derived from any “unrelated trade or business” – defined as “activity not substantially related to organization’s exempt purpose.” Income is “substantially related” if it “contributes importantly to accomplishment of the organization’s exempt purposes.”
  • The TCJA requires tax-exempt organizations currently subject to UBIT (including state-chartered credit unions) to pay it on certain employee fringe benefits, namely transportation and parking benefits, as well as on-site gyms and athletic facilities. For-profit businesses are no longer allowed to deduct these and other employee benefits.
  • Any UBIT arising from these fringe benefits will not be subject to the “silo” rule, meaning tax-exempt entities operating more than one unrelated business will be able to calculate their total net tax obligation for these fringe benefits and apply it against any existing UBIT tax liability.

CUNA is urging the Treasury Department to delay the new tax provisions due to a lack of clarity in the underlying provision requiring separate computation of UBIT for entities with more than one related business.  Additionally, CUNA is concerned with the unclear definition of fringe benefits and what is covered under the new UBIT tax expansion.

To read the full blog post and analysis, visit Removing Barriers.