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.
On July 1, the Senate passed their version of the bill. As we await finalization and the passage into law, we will keep you apprised of changes affecting the nonprofit sector. Key changes being discussed will impact tax policy and can reshape compliance obligations, funding strategies and will require revised 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:
Garrett M. Higgins, CPA
Partner-in-charge, Exempt Organizations Tax and Advisory Services
ghiggins@pkfod.comEva Mruk, CPA
Tracy Cai, CPA
Partner
emruk@pkfod.com
Director
tcai@pkfod.com- Melissa Modelson, CPA
Partner
mmodelson@pkfod.com
Joseph Connolly, EA
Director
jconnolly@pkfod.com - Sacha Richards, CPA
Director
srichards@pkfod.com