Proposed tax-exempt bond measures in Ways and Means chairman’s tax reform “discussion draft” 

March 12:  Proposals in the tax reform “discussion draft”—released in late February 2014 by House Ways and Means Chairman Dave Camp—that would affect exempt organizations and charities include measures concerning excess executive compensation, unrelated business income tax (UBIT), the treatment of charitable donations by individuals, among other items previously discussed.

Not to be overlooked, the tax reform discussion draft also proposes numerous changes to the treatment of tax-exempt bonds—in particular, proposed changes of interest to private tax-exempt organizations are the following:

  • 10% “surtax” on tax-exempt interest - The new tax rate structure for individuals would impose a 10% “surtax” on interest from tax-exempt bonds for certain “high income” taxpayers (as proposed by section 1001 of the draft legislation).
  • Termination of private activity bonds - Under the proposed provision (section 3431 of the draft legislation), interest on all private activity bonds issued after December 31, 2014, would be included in gross income and would be subject to tax. Private activity bonds issued on or before December 31, 2014, would not be affected by these changes. State and local governments could continue to issue private activity bonds after 2014, but interest with respect to such bonds would no longer be exempt from tax.
  • Repeal of advance refunding bonds - A proposed provision (section 3433 of the draft legislation) would subject to tax the interest on all advance refunding bonds. Interest on current refunding bonds would remain tax-exempt. This change would apply to advance refunding bonds issued after December 31, 2014.

For more information, contact:

Rick Speizman, Partner-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group

+1 (202) 533-3084

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