President Trump on December 20, 2019, signed into law H.R. 1865 (“The Further Consolidated Appropriations Act, 2020,” Pub. L. No. 116-94)—a government funding bill that includes a provision concerning certain telephone and electric cooperatives.
The legislation modified the rules for determining the tax-exempt status of certain mutual or cooperative telephone or electric companies. The provision generally allows mutual or cooperative telephone or electric companies to exclude from income certain government grants when applying the requirement under section 501(c)(12)—that is, 85% or more of their income must consist of amounts collected from members. The provision is effective retroactive to tax years beginning after December 31, 2017.
The 2017 tax law (Pub. L. No. 115-97) (often referred to as the “Tax Cuts and Jobs Act”) amended Code section 118 to provide that contributions after December 22, 2017, “by any governmental entity or civic group” that was not a shareholder could no longer be excluded from income as a contribution to capital. This caused section 501(c)(12) cooperatives to be concerned that government grants would have to be recognized as non-member income, thereby jeopardizing their tax-exempt status. Although the new provision is retroactive to tax years beginning after December 31, 2017, it appears that questions remain regarding whether government grants made after December 22, 2017, and before the first day of a cooperative’s first tax year beginning after December 31, 2017, could still adversely affect the cooperative’s tax-exempt status under section 501(c)(12).
For more information, contact KPMG’s National Director of Cooperative Tax Services:
David Antoni | +1 (267) 256-1627 | firstname.lastname@example.org
Or Associate National Director of KPMG’s Cooperative Tax Services:
Brett Huston | +1 (916) 554-1654 | email@example.com
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