Nonprofits can claim a refund or credit for unrelated business income tax (UBIT) that was enacted on transportation benefits for employees and since repealed by Congress. Organizations also have the option to adjust their Form 990-T for Qualified Transportation Fringe Amounts.
The Taxpayer Certainty and Disaster Tax Relief Act of 2019 retroactively repealed Internal Revenue Code (IRC) Section 512(a)(7), a provision that increased unrelated business taxable income by amounts paid or incurred for qualified transportation fringes. Congress previously enacted the provision for amounts paid or incurred after Dec. 31, 2017.
Section 512(a)(7) had imposed an UBIT on nonprofits for expenses providing transportation benefits to employees. Nonprofit employers were subject to a 21-percent tax on the amounts spent providing transit passes to employees but also applied to charities, such as houses of worship, that pay to provide employee parking.
Time limits for filing refund claims found in IRC Section 65111 apply to the refund claims, which typically are three years from the time the original Form 990-T was filed or two years from the time the tax was paid — whichever is later.
To claim a refund or credit of the UBIT reported on Form 990-T for 2017 or 2018 under the tax code, nonprofits can file an amended Form 990-T and also write “Amended Return” at the top of Form 990-T. If the amended return is being filed only to claim a refund, credit, or adjust information due to the repeal of Section 512(a)(7), write “Amended Return — Section 512(a)(7) Repeal.”
If you complete a Form 990-T for 2017, reduce the entry on the line that originally included the 512(a)(7) amount by that amount. Complete the rest of the Form 990-T based on that revised entry. Include on the “Other” sub-line of the Line 45g (Other credits and payments) the amount of tax from Line 48 (Tax due) of the original return, if any. If changes result in an overpayment, nonprofits should enter that amount on Line 49 (Overpayment) line of the amended return, which can be requested as refund or credit on Line 50.
For nonprofits that completed a Form 990-T for 2018, enter zero on Line 34 (Amounts paid for disallowed fringes) and complete the rest of the Form 990-T based on that revised entry. Include on the “Other” sub-line of Line 50g (Other credits, adjustments, and payments) the amount of tax from Line 53 (Tax due) of the original return, if any. If changes result in an overpayment, enter the amount on Line 54 (Overpayment) of the amended return, which can be requested as a refund or credit on Line 55. Attach a statement indicating the line numbers on the original return that were changed and the reason for the change (repeal of Section 512(a)(7)).
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