12 Tax Reform Proposals That Did Not Make It Into the Final Law

While tax reform brought extensive changes, there are a host of proposed changes that were left on the cutting room floor. Here are just some of the proposed tax law changes that did not make it to the final bill:

  • Reducing the cap pretax 401(k) and 403(b) contributions. While this concept did not make it into either the Senate or House bill, there was serious consideration of placing the annual limit for these pretax contributions as low as $2,400. Some tax reformers had even advocated eliminating pretax retirement plan contributions. 
  • Repeal of the exclusion for qualified tuition reduction plans. Under current law, employees of certain educational institutions may exclude qualified tuition reduction from taxable income. This includes employer-provided tuition reductions for the employee and their dependents. These tuition reductions may be in the form of tuition remission, tuition waiver, or a tuition grant.

Under the House bill these qualified tuition reduction benefits would have become taxable. This would have negatively impacted Christian K-12 schools and colleges and universities. Thankfully, this provision was not enacted.

  • Limitation of the exclusion for housing provided for the convenience of the employer. The House bill would have limited the exclusion for housing provided for the convenience of the employer and for employees of educational institutions under Code Sec. 119 to $50,000 (married filing jointly). That change would have impacted the leadership at many colleges and universities.
  • Modification of the Johnson Amendment.  A House provision would have modified—but not repealed—the law enacted in 1954, which regulates the speech of religious organizations and other organizations. Quoting Mike Batts, chairman of the Commission on Accountability and Policy for Religious Organizations, “it is the only law of its type on the books . . . the only law that allows the IRS to evaluate the content of a sermon delivered by a member of the clergy . . . the only law that could cause a church to lose its federal tax exemption based on the words spoken by its leaders in a worship service.”

The House proposal was consistent with the recommendations of the Commission in their 2013 report. The Commission was formed by ECFA at the request of Senator Charles Grassley.

The inclusion of this provision in the final bill was blocked by the Senate parliamentarian. Because of a requirement called the Byrd Rule (named after the long-tenured Senator from West Virginia, Robert Byrd), reconciliation bills—which are passed through a simple Senate majority—cannot contain extraneous provisions that don’t primarily deal with fiscal policy.

  • Adjustment to the charitable mileage rate. Oddly, while the IRS can adjust the business, medical, and moving mileages rates as they wish, only Congress can change the charitable mileage rate. That rate has been stuck at 14 cents per mile since 2002.

The House version of tax reform would have adjusted the charitable mileage rate for inflation but this provision was not in the final legislation.

  • Repeal of the exclusion for employer-provided educational assistance programs. Under current law, employees may exclude from income up to $5,250 per year in educational assistance at the undergraduate and graduate level regardless of whether the education is related to his or her job. Under the House bill, the payments would have become taxable. This provision was not enacted.
  • Elimination of the exclusion for employer-provided adoption assistance programs. Under current law, adoption assistance provided by employers under a qualified plan is excluded from taxable income. The House bill would have made these benefits taxable but it was not included in the final legislation.
  • Including an unborn child for Section 529 college saving account purposes. In a proposed change for 529 college savings accounts, the House bill articulated the definition of a child to include children carried in the womb, or more specifically, “a child in utero.” 

Under the current tax code, a person must have a Social Security number in order to be a 529 beneficiary, and babies are not assigned a number until after they are born. 

The unborn child language did not make it to the final bill.

  • Elimination of the exclusion for employer-provided dependent care assistance programs.  Under current law, an employer can develop a dependent care assistance program under which employees can exclude employer payments from income, subject to certain limitations, if the expenses would be employment-related for child care credit purposes if they were paid to the employee.

Under the House bill, this benefit would have become taxable. This was not included in the final legislation.

  • Additional reporting requirements for donor-advised fund sponsoring organizations. Charites that sponsor donor-advised funds would have been required to annually disclose their policies to address inactive DAFs and the average amount of grants made from their DAFs. This was not included in the final bill.
  • Elimination of private activity tax-exempt bond financing for 501(c)(3) projects. New private activity bonds, including 501(c)(3) bonds issued after 2017, would have been subject to taxation. This provision was not included in the final bill.
  • Elimination of the rebuttable presumption protection for nonprofits leaders.  Since 1996, Treasury Regulations have included procedures for 501(c)(3) organizations to review and approve transactions with directors, officers, substantial contributors, and others in a position to exercise substantial influence over the affairs of the nonprofit.

By following these procedures, the nonprofit was entitled to a rebuttable presumption under the law that the arrangement was reasonable compensation or fair market value. The intent of the law was to encourage good governance practices and to limit the ability of the IRS to aggressively raise intermediate sanctions issues upon audit.

The Senate bill would have eliminated the rebuttable presumption and, in its place, would have relabeled the current rebuttable presumption procedures as minimal due diligence procedures that do not create a rebuttable presumption.  The Senate provision did not become law.

So, you can readily see that there were many possible changes to the tax law that did not make it to the finish line in The Tax Cuts and Job Act of 2017.

For more information on Tax Reform and its implications for churches and nonprofits, please consider attending one of the free, in-person National Forums on Tax Reform and/or watching our free Tax Reform Webinar-on-Demand.

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.


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