This “Big Beautiful Bill” Could Mean Big Trouble for Large Foundations and Universities
On May 22, 2025, the U.S. House of Representatives advanced legislation, known as “The One, Big, Beautiful Bill” (the “Bill”), introducing several major provisions and changes to the tax code which exempt organizations and their leaders should be paying close attention to.
Now that the Bill has passed the House, the next step is consideration in the Senate, where a number of changes are likely to occur. Republicans control the Senate 53-47 and with Senator Rand Paul a definite “no” vote and Senator Ron Johnson a likely “no,” Republicans have very little margin for error. A number of Republicans are not on the same page as their House colleagues and have different priorities, ranging from the amount of spending to cut, the effective and sunset dates of various provisions and the desire to make the extension of existing tax provisions permanent. Timing for both the House and the Senate passing the same bill and sending it to the President remains fluid, but the more likely scenario points to passage in August as opposed to July 4.
New Rate Structure for Net Investment Income Tax (NIIT) of Private Foundations
The NIIT is currently applicable to private non-operating foundations at a flat 1.39% rate. The Bill would replace the flat rate with a new graduated rate structure. Foundations with total assets of less than $50 million would continue to pay the 1.39% rate, while those with assets between $50 million and $250 million would face a higher 2.78% rate. The rate continues to increase as total asset value increases, with foundations with assets between $250 million and $5 billion paying a 5% rate, and those with assets of $5 billion or more taxed at a 10% rate.
Shifts in “Endowment Tax” for Private Colleges and Universities
Private colleges and universities would also experience a major change in the excise tax on their net investment income (commonly called the “endowment tax”) under the Bill. The endowment tax would transition from a flat 1.4% rate to a new graduated rate structure based on an institution’s “student-adjusted endowment,” which is effectively the institution’s investment assets per eligible student. Institutions with a student-adjusted endowment between $500,000 and $750,000 would continue paying the 1.4% rate. Those with student-adjusted endowments between $750,000 and $1.25 million would pay a 7% rate, and those with student-adjusted endowments between $1.25 million and $2 million would be taxed at 14.00%. The highest rate of 21% would apply to institutions with student-adjusted endowments of $2 million or more. Notably, qualifying religious schools would be exempt from this tax.
Expansion of Excess Compensation Excise Tax
The Bill also expands the application of the excess compensation excise tax, which is currently limited to an organization’s five highest compensated employees. The Bill would expand the application of the tax to all current employees, and former employees, of an organization, as well as the employees of persons or governmental entities related to such organization, who receive more than $1 million in compensation.
New Floor on Charitable Deduction for Corporations
A new “floor” for corporate income tax charitable deductions is also established under the Bill, set at 1% of taxable income. Corporations would only be able to deduct contributions in excess of the new floor, up to the existing 10% ceiling under current law.
New Deduction for Non-Itemizers
The Bill introduces a temporary charitable income tax deduction for non-itemizing taxpayers, allowing deductions of up to $150 for single filers and $300 for married couples filing jointly for cash contributions to qualified charities during tax years 2025 through 2028. Notably, contributions to donor-advised funds or supporting organizations would not qualify for this new benefit to taxpayers.
Income Tax Credit for Contributions to Scholarship Awarding Charities
The Bill would also create a new income tax credit for contributions of cash or marketable securities to 501(c)(3) organizations classified as public charities that primarily provide scholarships for qualified elementary or secondary education expenses of eligible students.
Favorable Change to Excess Business Holdings Limitation
Another provision in the Bill that may be welcome news for certain private foundations is the exclusion of stock repurchased by a company from a retiring employee who participated in the company’s employee stock ownership plan (ESOP) from being “counted” for purposes of the excess business holdings limitation, which generally prohibits private foundations from owning more than 20% of the voting stock of a business enterprise.
Narrowing of Unrelated Business Taxable Income Exclusion Relating to Research
Finally, the Bill modifies the current exclusion of income from research activities from unrelated business taxable income (UBTI). The exclusion would be narrowed to apply only to income derived from fundamental research, the results of which are freely available to the general public. Accordingly, income from nonpublic research activities would constitute UBTI.
As the Bill winds its way through the legislative process, it is imperative for exempt organizations to stay informed and engaged. The attorneys and government relations professionals at Buchanan Ingersoll & Rooney PC will continue to monitor and provide additional analysis, as well as personalized guidance on navigating the complexities of the proposed tax provisions. Our government relations professionals are actively working to advance our clients’ goals with respect to this legislation. For additional information, please contact Nonprofit Organizations Practice Group Leader Joshua D. Headley ([email protected]) or Government Relations Principal Edward Hild ([email protected]).