Public Policy
Tax Cut and Jobs Act of 2017: Summary of Provisions Affecting Educational Advancement

On Nov. 9, Senate Finance Committee Chairman Orrin Hatch (R-UT) introduced the Senate version of the Tax Cuts and Jobs Act. Here is a summary of the bill's provisions that affect the advancement profession. Note that this summary will be updated as the bill works its way through the legislative process. 

Current Status: On Dec. 2, the U.S. Senate passed its version of H.R. 1 on a 51-49 vote. The House and Senate will now work to reconcile the differences between their two bills in conference. 

I. Charitable Giving and the Charitable Deduction

    • Retains seven tax brackets but lowers top individual rate - Retains seven tax brackets - 10 percent, 12 percent, 22.5 percent, 25 percent, 32.5 percent, 35 percent and 38.5 percent. The 38.5 percent top bracket (lower than the current 39.6 percent top bracket) would apply to individuals with incomes over $500,000/$1 million for married couples.*  
    • Doubling Standard Deduction - Doubles the standard deduction threshold to $12,000 for individuals and $24,000 for married couples. While the charitable deduction is preserved, the bill does not include a universal charitable deduction proposal. This means that only 5 percent of American taxpayers (those projected to itemize under the plan) will benefit from the charitable deduction.*
    • Increase in AGI Limitations for Cash Gifts - Allows taxpayers to deduct cash contributed to public charities like colleges, universities and independent schools up to 60 percent of his or her Adjusted Gross Income per tax year, up from 50 percent under current law. The current limit of 30 percent of AGI for capital gain property remains unchanged.* 
    • Repeal of the Pease Limitation - Repeals the overall limitation on itemized deductions (Pease limitation).* 
    • Repeal of College Athletic Seating Deduction - Repeals the special rule that allows taxpayers to deduct 80 percent of a charitable gift made for the right to purchase tickets for college and university athletic events. 

II. Endowments

    • Excise Tax - applies a 1.4 percent excise tax on net investment income for private colleges and universities with over 500 students and with an aggregate fair market value of assets of which at the end of the preceding taxable year (other than those assets which are used directly in carrying out the institution's exempt purpose) is at least $500,000 per student of the institution.

III. Estate Tax

    • Preserves, but Doubles Exemption Level - Exemption level doubled to $10 million, indexed for inflation.* 

IV. Executive Compensation

    • Excise Tax - For tax-exempt organizations, applies a 20 percent excise tax on compensation above $1 million paid to any of its five highest paid employees. Also applies to excess parachute payments paid to these individuals.
    • Elimination of Rebuttable Presumption - Eliminates the rebuttable presumption of reasonableness contained in intermediate sanctions regulations. Current procedures (advanced approval by authorized body, reliance on comparatability data and adequate and concurrent documentation) would establish that an organization has performed minimum standards of due diligence. Satisfaction of these minimum standards would not result in a presumption of reasonableness.**
    • Expanded Definition of Disqualified Persons - Expands definition of disqualified person under intermediate sanctions rules to include athletic coaches and investment advisors.**
    • Entity Tax - Imposes a 10 percent excise tax on a tax-exempt organization when an excess-benefit excise tax is imposed on a disqualified person.** 

V. Unrelated Business Income Tax 

    • Name and logo royalties - Currently, income derived from the sale or licensing of tax-exempt organization's name or logo is excluded from unrelated business taxable income. The bill would treat any sale or licensing by a tax-exempt organization of its name or logo as an unrelated business activity and payments would be taxable.**
    • Compute UBTI separately for each trade or business activity - Currently, tax-exempt organizations calculate aggregate gross income to determine unrelated business taxable income. The bill would require organizations to calculate separately the net unrelated taxable income for each unrelated trade or business activity and only apply a loss to the activity that generated the loss.

* On Nov. 15, the Senate Finance Committee approved an amendment to the Chairman's mark that sunsets this provision on Dec. 31, 2025. , 

**On Dec. 1, the full Senate approved a manager's amendment that removed a number of provisions and changed the endowment excise tax threshold to $500,000 per student.