Tax Reform: How are Endowments and Foundation Giving Affected?

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Tax Reform: How are Endowments and Foundation Giving Affected?
Calendar20 December 2017

It was inevitable that there would be peripheral impact on Endowments and Foundations as a result of changes to incentives on charitable giving – the current tax bill is the most sweeping tax reform in 30 years.

The most dramatic implication of the bill, however, is the sea change in introducing provisions that have a direct effect on non-profits – either through introducing new types of direct taxes or prohibiting beneficial tax treatments. For instance, in declaring that higher ed institutions with more than $500,000 in endowment per full-time student, the government has drawn its first imaginary line on how wealthy is too wealthy for a not-for-profit. In requiring separate tax treatment for revenue generated by activities not core to an institution’s mission, the government applies further discretion, costing institutions a valuable tax liability offset.

Given the newness of these direct provisions, it is difficult to assess what the full implications will be under the current bill. The greater uncertainty is around what future taxes could be introduced now that the door has been opened. In the interim, institutions should prepare for a likely decrease in donations as well as a decline in select sources of revenue. This enhances pressure on the Endowment, calling for greater discipline in driving growth and preserving purchasing power.

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