Proposed Tax Changes Put Associations at Risk

For decades, a staple of the federal tax code has been that business and professional associations, as well as charitable, educational, and scientific organizations, could earn tax-free income from mission-related activities, with an exception for unrelated business income.

That situation may be in jeopardy next year. Terms such as the “Tax Super Bowl” and “Tax Armageddon” are being used to describe the next session of Congress, which begins in January 2025. Why? $4.6 trillion of tax relief provided by the 2017 Tax Cuts and Jobs Act expires on Dec. 31, 2025, unless Congress acts. Both major candidates for President also are promising new programs that require new funding, up to $10 trillion in total.

In addition, several pro-growth members of Congress have been replaced by members who would rather address the federal debt. There has also been considerable turnover on the key tax writing committees since the previous tax reform bill was developed.

Experts are telling us that tax legislation “has to happen” in 2025, there will be no sacred cows this time around, and no one is safe, regardless of which party controls Congress and the Presidency. And tax legislation can be passed in the Senate with a simple 50% plus one majority through a process called “budget reconciliation.”

Where will new funding come from? Probably not from Medicare and Social Security cuts, as you can imagine. Two think tanks believe they found an easy source for this new revenue. The Tax Foundation is proposing to apply the 21% corporate income tax to the net program service income of not-for-profit organizations. Further, according to The Cato Institute, not-for-profit status should be eliminated for activities where there is a clear for-profit private-sector competitor. 

While we have not seen specific legislative language yet, presumably, the 21% corporate tax would apply to all non-charitable donation net revenue, including membership dues, sponsorships, credentialing, investment income, and educational program revenue, all essential components of association operations.

The public policy team at the American Society of Association Executives (ASAE) suggests that populists on both sides of the partisan divide may find such proposals intriguing. What can we do to defend the long-standing tax-exempt protections of our associations?

First, be aware that ASAE is launching a coalition of associations and other non-profit and tax-exempt organizations to prevent further taxation of the sector. ASAE is also developing advocacy and educational materials to support messaging of the societal benefits of associations, many of which are small businesses that employ constituents of members of Congress and contribute to the health of local communities. Be on the lookout for this information in the coming weeks and months.

Second, block the dates of March 25-26, 2025, for the ASAE fly-in and plan to participate.

Mary Kate Cunningham, CAE, Senior Vice President, Public Policy, ASAE advises, “Add your voice. Early education of Congress, especially of new members, will be crucial. We need constituents to get in Congressional offices next year and tell our story.”

“There will be a lot of interest groups making the case for why their industries shouldn’t face tax increases next year, and nonprofits can’t rely on reputation alone to protect their tax treatment. As many say in DC, if you’re not at the table, you’re on the menu,“ says Sara Barba, Principal, Integer, LLC., a Washington DC government affairs firm.  

This is a significant legislative threat potentially, but it’s not the first time associations have been targeted. Joining together, we can successfully protect the not-for-profit sector so we can continue to improve lives and support communities.