On June 17, the Senate Finance Committee released its draft of the One Big Beautiful Bill. Overall, many provisions overlap with the House bill but there were significant differences with those affecting tax-exempt organizations.
We had posted a May 16 article covering the bill’s impact on nonprofit organizations; the following sections have been removed from the House version:
- Section 112025: Name and logo royalties treated as unrelated business taxable income
- Section 112026: Exclusion of research income limited to publicly available research
- Section 112024: Unrelated business taxable income increased by amount of certain fringe benefit expenses for which deduction is allowed
- Section 112022: Increase of tax rate on net investment income of certain private foundations
- Section 112209: Suspension of exemption for material support for terrorist organizations
The following sections remained in the Senate version but were modified:
- Section 112021: Modification of excise tax on investment income of certain private colleges and universities. This provision follows the original House proposal with a change to the tiered structure. The Senate version modifies the thresholds and rates as follows:
| Student-adjusted Endowment | Tax Rate |
| $500,000-$750,000 | 1.40% |
| $750,000 – $2,000,000 | 4% |
| Over $2,000,000 | 8% |
The Senate version removed the tier between $750,000 and $2,000,000 and reduced the top rate from 21% to 8%.
- Section 110112: Reinstatement of partial deduction for charitable contributions of individuals who do not elect to itemize. This provision allows for deduction of $150 ($300 married filing jointly) for those who do not itemize. The Senate draft (Section 70424) reinstates the nonitemizer deduction permanently and raises it to $1,000 ($2,000 for married filing jointly). This provision would be effective beginning in tax year 2026.
A couple of the exempt organization sector provisions that remained unchanged as of the June 17 draft were as follows:
- Section 112020: Expanding application of tax on excess compensation within tax-exempt organizations. This provision specifically revises the definition of a “covered employee” to mean any employee (including any former employee) of an applicable tax-exempt organization who received remuneration in excess of $1 million.
- Section 112027: One-percent floor on deduction of charitable contributions made by corporations.
In addition to the above changes, the Senate noted additional provisions, as follows:
- Section 70425: A 0.5-percent floor on deductions of charitable contributions made by individuals who elect to itemize.
- Section 70411: Tax credit for contributions of individuals to scholarship-granting organizations. This provision creates a new income tax credit for charitable contributions made to tax–exempt organizations that provide scholarships to elementary and secondary school students. The credit may not exceed the greater of 10% of the taxpayer’s AGI or $5,000. An individual is allowed the credit only to the extent the Secretary of the Treasury allocates the credit to the individual. Students receiving scholarships will have to meet certain criteria.
We continue to follow the development of the proposed tax bill and will publish updates as they become available.
Please note: This article was written before the final version of the bill became law, so some information may no longer be current.
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