PKF O'Connor Davies Accountants and Advisors
PKF O'Connor Davies Accountants and Advisors

Tax Reform Tug of War: Strategic Insights for Nonprofits Caught in the Middle

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June 30, 2025

By Joseph Connolly, EA, Director


Key Takeaways

  • Nonprofit organizations should evaluate how the proposed excise tax on executive compensation may affect them.
    The 21% tax is likely to apply to all current and former employees earning over $1 million, not just the top five earners.

  • Donor-advised funds (DAFs) may not qualify under expanded charitable deductions, requiring new donor messaging.
    Nonprofits should help donors understand that DAF contributions may be excluded from the Senate’s proposed universal deduction.

  • Corporate partnerships may require new strategies to meet proposed charitable giving thresholds.
    A 1% minimum giving requirement is expected to be necessary for corporations to deduct charitable contributions.

With Congress working to reconcile the House’s “One, Big, Beautiful Bill Act” and the Senate’s alternative tax package, nonprofits, private foundations and donor-advised funds (DAFs) are watching closely. While the bills differ in scope, several provisions affecting the nonprofit sector are being discussed and may become law. Key changes in tax policy can reshape compliance obligations, funding strategies and long-term planning.

Key Provisions Compared

Below is a comparison of the key provisions under consideration in each proposal:

Policy Area

House Proposal

Senate Proposal

Foundation Excise Tax

Tiered rates (up to 10%)

Flat 1.39% (current law retained)

University Endowment Tax

Up to 21%

Capped at 8%

Universal Charitable Deduction

$150/$300; expires 2028

$1,000/$2,000; excludes DAFs

Itemized Deduction Floor

No change

Adds 0.5% AGI floor

DAF Treatment

No restrictions

Excludes DAF gifts from universal deduction

Executive Compensation Tax

21% on nonprofit compensation over $1M

Same

Corporate Giving Requirement

1% minimum to claim deduction

Same

UBIT/Fringe Benefit Taxation

Expands to include parking, transit and some research

No change (current exclusions preserved)

What’s Likely to Survive

 Based on bipartisan support, the following provisions are expected in the final bill:

  • Excise tax on nonprofit executive compensation over $1 million to include all current and former employees, not just the five highest paid employees.
  • 1% charitable giving floor for corporations to deduct charitable donations.
  • Higher universal charitable deduction for individuals (Senate version more likely), with exclusions for DAFs.
  • No expansion of unrelated business income tax (UBIT).

The more controversial House proposals, such as tiered foundation taxes and expanded fringe benefit taxation, are expected to be dropped during reconciliation.

Planning Opportunities

  • Review executive compensation packages and deferred benefits to assess exposure to the 21% excise tax.
  • Refocus donor messaging to emphasize gifts that qualify under the universal deduction, particularly those made directly to operating charities.
  • Prepare for DAF conversations. Donors may need guidance if DAF contributions are excluded from new deductions.
  • Engage with corporate sponsors to help them meet the 1% giving threshold for deductibility.

Let’s Talk

Tax reform is moving quickly and its impact on a nonprofit organization’s operations, compliance and fundraising could be potentially significant. Our tax-exempt organization and advisory services team is ready to help you assess the risks, plan around likely outcomes and assist your organization with communicating the impact of the changes clearly with boards and donors.

Contact Us

If you would like to talk through scenarios specific to your organization, please reach out to your PKF O’Connor Davies client service team or: