A Big Beautiful Bill That’s Pretty Ugly for Tax-Exempt Entities

By Nicholas Porto May 23, 2025

President Trump’s 1,000-page Big Beautiful Bill (BBB), which passed by a narrow margin in the House this week, contains several provisions that will impact the tax-exempt sector. Most of them are unwelcome news for nonprofits. The BBB expands upon some of the key items of note to non-profits enacted during President Trump’s first term with the Tax Cuts and Jobs Act (TCJA) and also creates a handful of new provisions for tax-exempt organizations. The Bill now goes on to the Senate where Republicans hope to have it passed in time for the President’s signature by July 4, 2025.

We’ll lead off with one of the lone BBB bright spots for nonprofits with Section 110112, which would reinstate the ability for non-itemizers to deduct donations made to charitable organizations. However, the cap is pretty low, just $150 for single filers and $300 for married couples (half of what it was in 2021), and would expire at the end of 2028.

While the bill might give a small boost of donation revenue to nonprofits from nonitemizers, Sections 112028 and 110002 make it more difficult for corporate donors and those that do itemize to deduct their donations. In order for corporations to make use of a charitable deduction, the donation must be greater than 1% of taxable income but cannot exceed 10%. For individuals, the bill would increase the standard deduction from $15,000 to $16,000 which likely will reduce the number of itemizers and thereby potentially reduce the number of individuals who will be eligible to deduct their charitable contributions.

The TCJA placed a 21% excise tax on organizations that pay their top five highest paid employees over $1M, with some nuances as well as carve-outs and exceptions. The BBB would extend this excise tax to apply to any current or former employee of a tax-exempt entity making over $1M, not just one of the top five highest paid. The original bill would have potentially applied this excise tax to employees of entities related to a nonprofit, but this language was stricken on May 19^th.

Private foundations would see a change in their net investment income excise tax calculation.  Section 112022 would cause it to be dependent on the value of their assets. The current excise tax rate of 1.39% would only apply to private foundations with less than $50M in assets. The rate would be doubled to 2.78% for foundations with assets between $50M and $250M. Foundations with assets between $250M and $5B would pay a 5% excise tax on their net investment income. For the few private foundations with assets in excess of $5M a 10% excise tax on their annual net investment income would be levied.

And if all of that wasn’t enough, the BBB would also make some big changes to unrelated business income tax rules. First, Section 112026 would place a tax on a research organization’s income from scientific research unless that research was made available to the public. Second, currently royalty income is excluded from unrelated business income tax treatment. However, Section 112025 would subject an organization’s income from their name and logo to unrelated business income tax. It’s not currently clear how sweeping this provision would be, but conceivably an organization selling t-shirts or other merchandise with its logo on it would have that revenue at least be partially subject to tax based on how the current draft language is written.

And third, saving the best for last, remember the parking tax from the 2017 TCJA? Who could forget the headache the parking tax instilled in nonprofit managers and tax preparers alike in 2018 when the confusing legislation put a tax on an expense for nonprofits? Mercifully, the parking tax was retroactively repealed for nonprofits after two years of misery. Well, it’s back in full force with Section 112024. Like a bad case of déjà vu, the BBB would have nonprofits include in unrelated business income any cost paid or incurred for qualified transportation fringe benefits or parking facilities. Currently, churches are the only groups excluded from Section 112024.

The BBB also includes a handful of other provisions of note. Section 112023 would modify the excess business holdings rules under Section 4943 to allow certain repurchased voting stock to be included in the denominator when calculating whether a private foundation has exceeded its permitted holdings of that stock. 110109 would allow donors to take a nonrefundable tax credit up to $5,000 for contributions made to scholarship paying organizations, but only to those that are private or religious elementary and secondary schools. Section 110115 would create a “Trump Account,” which would be a trust created for the benefit of a child under the age of 18. When the children turn 18, they could withdraw funds from the trusts for education, purchase of a new home, and other qualified expenditures. Section 110115 would allow private foundations and other 501(c)(3) organizations to contribute to a Trump Account as well.

While the BBB cleared its first major hurdle this week with the House’s approval, there could still be significant modifications (favorable or unfavorable to nonprofits) by the Senate. One worrisome provision, Section 112209, was already repealed from the draft legislation.  It would have given the Treasury Secretary the ability to designate a tax-exempt entity as a terrorist supporting organization and unilaterally revoke that organization’s tax-exempt status without due process. Hopefully, more favorable revisions will be made by Senators in the days to come.