Daily Tax Report ®

Nonprofit Tax Rules Back Under White House Review

April 15, 2020, 6:46 PM

The White House review office is once again studying a set of proposed rules on how nonprofits calculate tax owed on income generated by activities outside their core focus.

The Office of Information and Regulatory Affairs completed its review of the proposed rules in March, and a website update dated Tuesday signaled the rules are back under review again. The office’s review is typically the last step before Treasury will release significant regulations, and additional review may be necessary when provisions are changed in the process.

The extra review is likely due to changes from the latest virus relief package (Public Law 116-136) which was enacted late last month, practitioners said. Among the changes in that law, known as the CARES Act, is a provision allowing companies to carry back losses to five years earlier.

The nonprofit proposed rules address unrelated business income tax, and require nonprofits to calculate it separately—a process known as siloing or basketing—for each trade or business. The requirement was part of the 2017 tax overhaul and the rules are among the most anticipated nonprofit packages.

The delay may be because the proposed rules either conflicted with what the virus package said about tracing losses, or didn’t address it at all, said Alex Reid, a partner at Morgan Lewis & Bockius LLP.

“They would have had to decide whether to delete the discussion of tracing losses into silos altogether or rewrite it to update with new law. Hence the delay,” he said.

The need for the rules to address the CARES Act changes “makes sense,” said Elinor Ramey, a partner with Steptoe & Johnson LLP in Washington who worked on 2017 tax law guidance as an attorney adviser in Treasury’s Office of Tax Policy.

Treasury didn’t return requests for comment. The OIRA website doesn’t provide additional information about the reason for or scope of a review.

The extra layer of review could also be very routine, said Ruth Madrigal, a principal and leader of the exempt organizations group in the Washington National Tax practice of KPMG LLP. Madrigal was previously an attorney-adviser in Treasury’s Office of Tax Policy from 2010 to 2016.

“There could have been questions that needed a change and this is ordinary,” she said. “Or the CARES act changed provisions with carrybacks and there could be questions with how those apply.”

It isn’t uncommon for an agency to revisit proposed rules after an OIRA review, said Kristin Hickman, a professor at the University of Minnesota Law School and former special adviser to the administrator of OIRA. An agency sometimes decides to adjust elements of proposed guidance based on comments from other agencies or government offices.

“It is possible that something like that occurred in this instance, and maybe that prompted what you have observed on OIRA’s website,” she said.

To contact the reporter on this story: Sam McQuillan in Washington at smcquillan@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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