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(as well as a proportionate amount for part-time employees)
of annual family and medical leave (under the Family and
Medical Leave Act of 1993) is entitled to a general business
credit equal to 12.5% of the compensation it pays to certain
employees (employed for at least one year and having a
rate of compensation not in excess of $72,000 [for 2018])
while they are on such a leave. The 12.5% credit amount is
increased by 0.25 percentage points (but not above 25%)
for each percentage point by which the rate of payment
exceeds 50%.
Trusts and Estates
The Act, effective January 1, 2018, doubles the amount
that can be exempted from federal estate tax to around
$11 million per taxpayer (depending upon how inflation
adjustments are calculated). This provides taxpayers with
an excellent opportunity to accomplish significant asset
protection and business succession planning until the
provision sunsets at the end of 2025.
Opportunities for planning abound Because the Act
prevents the deduction of state and local income, real
estate, and sales tax, some taxpayers may wish to consider
setting up incomplete non-grantor trusts in order to shift
income out of the reach of state tax authorities. The income
would be subject to the highest tax rate at the federal level
for all income over $12,500, but it could avoid state income
taxes entirely.
Taxpayers may want to consider making gifts to parents
(or, better yet, to trusts for their parents). With the doubled
exemption, this strategy offers a viable opportunity to
accomplish an increase in basis for income tax planning
purposes. Life insurance planning will continue to be
important for taxpayers not only to provide liquidity to their
survivors, but also as a source for tax-free retirement income.
Tax Exempt Organizations
Unrelated business taxable income (UBTI) treatment of
entities exempt from tax under Internal Revenue Code
Sections 501(a) and 511 The Act does not include any
provision to clarify treatment if an entity has dual tax exempt
status, for example, under 501a, 401(a), and 115 of the
Code, pertaining to its exposure to Section 511 (UBIT).
Exclusion of research income from UBTI There were
proposed modifications to this exclusion. The final law,
however, contains no change to existing provisions.
UBTI separately computed for each trade or business
activity Previously, an organization could determine its
unrelated taxable income on an aggregate income and
subtract aggregate deductions, thereby allowing offset
of multiple trades and businesses. Effective for tax years
after December 31, 2017, unrelated business income must
first be computed separately with respect to each trade or
business, the aggregate of which cannot be less than zero.
An NOL is only allowed with respect to a trade or business
from which the loss arose. There is a special transition rule
for NOLs carried into years beginning after January 1, 2018.
21% excise tax on excessive compensation paid by tax-
exempt organizations (Section 4960) As of the 2018
tax years, tax-exempt employers are liable for an excise
tax equal to 21% of the sum of remuneration paid to their
"covered employees": (a) in excess of $1 million, plus (b) any
amount that would constitute an excess parachute payment
under the Golden Parachutes rules (but with respect to the
employee's separation from service rather than a change of
control of the employer).
The Act does not modify:
Existing provisions of excise tax of private foundation
investment income or of the private operating founda-
tion requirement relating to the operation of an art
Current provisions regarding the exception to private
foundation excess business holding rules.
Current provisions connected to Section 501(c)(3) on
organizations being prohibited from making state-
ments relating to political campaigns.
Current provisions regarding additional reporting re-
quirements for donor-advised funds sponsoring an
The Act includes no provision:
To repeal tuition remission or related benefits under
Section 117(d) or to repeal the exclusion for educational
assistance programs under Section 127 from taxable
income (up to $5,250).
On the limitation on exclusion for employer-provided
housing under Section 119.
On interest on private activity bonds issued after
December 31, 2017 as gross income of the taxpayer.
The Act:
Includes a provision repealing the exclusion from gross
income for interest on a bond issued to advance refund
another bond.
Follows the Senate amendment with modification
regarding excise tax based on investment income
of private colleges and universities. The provision
impacts only a small number of colleges and universities,
effective after December 31, 2017.
Federal Tax Reform
Special Section