Feds Try To Explain, Mitigate Parking UBIT
December 11, 2018 Paul Clolery
Nonprofit workers have a lot to deal with but paying for parking soon might not be one of them.
The U.S. Department of the Treasury and the Internal Revenue Service (IRS) yesterday provided some guidance designed to lessen the impact of last year’s tax reform bill.
“Treasury is sensitive to the concerns of the tax-exempt community, and hopes this guidance can significantly limit the impact on non-profit groups,” Treasury Secretary Steven Mnuchin said via a statement. “Treasury is offering tax-exempt organizations a roadmap for navigating their responsibilities. The guidance issued today aims to provide flexibility while minimizing the burden on non-profit groups that provide employee parking.”
The 2017 tax law took away tax deductibility for businesses providing certain fringe benefits, including parking. Nonprofits were hit with unrelated business income tax (UBIT) of 21 percent for the transportation benefits provided to employees.
It’s not all good news. “In a law intended to create tax simplification, this notice explains how to apply the section by requiring nonprofits of all sizes to follow a four-step calculus that will vary for each organization, and can vary from month to month,” David L. Thompson, vice president of public policy for the National Council of Nonprofits, said via a statement. “The notice provides minimal instruction, relieves some organizations of penalties that result from the IRS’s own delay, and completely ignores the imposition of the new taxes on transit benefits — benefits that are mandated for some employers in various cities,” Thompson said.
Those four steps are:
1. Calculate the disallowance for reserved employee parking spaces;
2. Determine the primary use of remaining spaces (the “primary use test”);
3. Calculate the allowance for reserved non-employee spaces; and,
4. Determine remaining use and allocable expenses.
The guidance shows how businesses can compute the amount of parking expenses they can’t deduct, and how nonprofits can compute the amount of expenses subject to UBIT. In cases where a business or nonprofit owns or leases facilities where employees park, the entity can determine the amount using “any reasonable method” or by following a method outlined in the document.
Nonprofits might be able to reduce the amount of tax by reducing or eliminating the number of parking spaces they reserve for employees by March 31. According to the guidance, if the taxpayer completes Steps 1-3 and has any remaining parking expenses not specifically categorized as deductible or nondeductible, the organization must reasonably determine the employee use of the remaining parking spots during normal business hours on a typical business day, or, in the case of an exempt organization, during the normal hours of activities on a typical day.
Methods to determine employee use of the remaining parking spots may include specifically identifying the number of employee spots based on actual or estimated usage. Actual or estimated usage may be based on the number of spots, the number of employees, the hours of use, or other measures.
Public comments should be submitted by February 22, 2019 and should include a reference to Notice 2018-99. Comments may be submitted electronically via the Federal eRulemaking Portal at www.regulations.gov (type IRS-2018-0038 in the search field on the regulations.gov homepage to find this notice and submit comments). Submissions may be sent by mail to: Internal Revenue Service Attn: CC:PA:LPD:PR (Notice 2018-99) Room 5203 P.O. Box 7604 Ben Franklin Station Washington, D.C. 20044 or by hand or courier delivery to 1111 Constitution Ave., NW, Washington, D.C. 20224.