Best Strategies for Allocating Your Forthcoming UBIT Refund

After Congress repealed a section of the 2017 tax law that required associations and other tax-exempt groups to pay UBIT on some employee benefits, organizations are owed IRS refunds. An expert offers options for what associations can do with their refund money.

As part of a massive, bipartisan year-end spending and tax package signed into law in December, Congress repealed a section of the 2017 tax law that required associations and other tax-exempt organizations to pay a 21 percent unrelated business income tax (UBIT) on employee benefits, such as parking and transportation. As a result, the Internal Revenue Service (IRS) is required to issue refunds to organizations for taxes they paid over the past two years.

The amount associations paid varied widely, with large associations typically having paid more than smaller ones. Early estimates said, on average, the tax would cost organizations about $12,000 annually, but no data is currently available on how much associations actually paid. Regardless the amount to be refunded, associations will receive some unexpected money.

Now that the IRS has issued guidance on how organizations can claim refunds, it’s a good time to think about what to do with that money. I spoke about some options with Rob Olcott, CIMA, FASAE, CAE, regional director at investment and consulting firm DiMeo Schneider and Associates.

Olcott pointed out this is new territory. “I’ve been working for and with associations since the late ‘70s, and I can’t think of another instance where associations have received a windfall refund from the IRS,” he said. “I don’t think there’s a precedent for that. I would suspect, as such, most associations don’t have experience with this.”

Since there’s no precedent, associations will likely look for the safe option. “My first thought would be to take the refunds and add them to their reserve fund,” Olcott said. “I suspect that will be the most common response.”

The second option would be to use the funds now to boost programs that need a little extra help. “If it goes into the operating budget, the refund would likely be spent in the organization’s current fiscal year,” Olcott said.

A third option that Olcott suggested, for at least a portion of the money, is to use it to beef up government relations efforts at their organization or any coalitions the association belongs to, especially if these teams worked on getting the tax repealed. “If I was getting a refund check due to an effort that was undertaken by a group, I might think about contributing back a portion of that refund,” Olcott said.

Since associations are in the process of doing paperwork to claim their refunds, they still have time to think about what they want to do. And that’s what they should be discussing now. “They will be having conversations, in some cases, with the board and with their finance committee as to what to do,” Olcott said. “It depends on the organization and how they’re run and their priorities. If they’re looking for the most time, adding it to the reserves would give them the most options, as they could decide at a future date.”

If your organization will be receiving a UBIT refund, do you have any plans for how you’ll use it? Share in the comments.

(Juanmonino/iStock/Getty Images Plus)

Rasheeda Childress

By Rasheeda Childress

Rasheeda Childress is a former editor at Associations Now. MORE

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