Under the 2025 provisions of the OBBBA tax law, private schools will need to adapt to major changes affecting their nonprofit status and compliance procedures. Effective planning throughout 2024 is essential for maintaining eligibility and minimizing operational risks.
Key Changes Affecting Private Schools
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Revised Exemption Criteria
Schools must now actively demonstrate a broader community benefit to retain their federal tax-exempt status. -
Enhanced Reporting Requirements
Annual disclosure is now required for:-
Tuition assistance programs
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Donor information
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Executive compensation details
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New Thresholds for Regulatory Filings
Institutions with more than $2million in gross receipts must now make more frequent and detailed IRS filings.
Compliance Challenges
Most private schools have limited back-office capacity, which complicates compliance with these expanded rules. The major hurdles include:
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Data Collection
Collecting and validating comprehensive financial and operational records for mandatory public disclosure. -
Policy Updates
Revising bylaws, mission statements, and governance documents to match the law’s wider definition of “public benefit.” -
Staff Training
Preparing accounting and fundraising staff to understand and manage new reporting forms, digital tools, and annual deadlines. -
Stakeholder Communication
Ensuring transparency by updating trustees, donors, parents, and staff about changing obligations and school policies.
Action Steps: Preparing for 2025
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Conduct a Compliance Audit
Review and document current record-keeping, governance protocols, and benefit programs to find compliance gaps. -
Engage Tax Expertise
Partner with an experienced nonprofit tax advisor to interpret the OBBBA’s updated rules and assist with required IRS filings. -
Upgrade Financial Systems
Invest in accounting software or reporting platforms capable of automating data collection and preparing mandated disclosures. -
Revise Institutional Policies
Update board-approved documents to reflect new definitions of public benefit and approved uses of school funds. -
Initiate Staff Training
Schedule regular compliance briefings to familiarize team members with new forms, changes in filing procedures, and data security. -
Communicate Proactively
Send regular updates to all stakeholders, outlining new legal responsibilities, school policy changes, and important compliance dates.
FAQ: OBBBA Tax Law and Private Schools (2025)
Q1: What is the OBBBA tax law’s main impact on private schools?
A1: It requires broader community benefit for tax exemption and strengthens annual reporting on finances, tuition aid, donors, and compensation.
Q2: Which schools face increased oversight under OBBBA?
A2: Any private school with over $2million in gross receipts will see additional filing scrutiny and more frequent reporting.
Q3: What documents must be updated under the new rules?
A3: Bylaws, governance policies, and program descriptions must all align with OBBBA’s new definition of public benefit.
Q4: How can schools prepare for the 2025 changes?
A4: Conduct a compliance audit, seek specialized legal or tax counsel, implement robust accounting software, and set up training programs.
Q5: What happens if a school is not compliant by 2025?
A5: Schools risk losing tax-exempt status, incurring IRS penalties, and damaging their public reputation.
Proactive compliance throughout 2024 will help private schools safeguard their nonprofit standing and successfully navigate the new OBBBA regulatory landscape.