IRS Issues Guidance For Determining Nondeductible Amount Of Parking Fringe Expenses And UBTI; Provides Penalty Relief To Tax-Exempt Organizations
On December 10, 2018, the Internal Revenue Service issued interim guidance regarding the treatment of qualified transportation fringe ("QTF") benefit expenses paid or incurred after December 31, 2017. The guidance is provided in IRS Notice 2018-99. The new rules assist taxpayers in determining the amount of parking expenses that are no longer tax deductible. They also help tax-exempt organizations determine how these nondeductible parking expenses create or increase unrelated business taxable income (UBTI).
The IRS acknowledges that this guidance falls late in the year and taxpayers that own or lease parking facilities may have already adopted reasonable methods in 2018 to determine the amount of their nondeductible parking expenses. Taxpayers may rely on the guidance or, until further guidance is issued, use any reasonable method for determining nondeductible parking expenses related to employer-provided parking.
A key part of this guidance is a special rule, enabling many employers to retroactively reduce the amount of their nondeductible parking expenses. Under this rule, employers will have until March 31, 2019, to change their parking arrangements to reduce or eliminate the number of parking spots they reserve for their employees. By making this change, many churches, schools, hospitals and other tax-exempt organizations may be able to reduce their associated UBTI. In some cases, the organization may avoid having to file a Form 990-T, Exempt Organization Business Income Tax Return, altogether. Such a change made in parking arrangements will apply retroactively to January 1, 2018.
The Treasury Department and the IRS request comments for future guidance to further clarify the treatment of QTFs under §§ 274 and 512. In particular, the Treasury Department and the IRS request comments about the definitions of “primary use” and “general public” and whether primary use should be used to determine the extent to which parking is made available to the general public under § 274(e)(7). The Treasury Department and the IRS request comments on other methods for determining the use of the parking spots and the related expenses allocable to employee parking. The Treasury Department and the IRS also request comments on the applicability of § 274(e)(8) to expenses for any goods or services that constitute a QTF sold by the taxpayer to an employee in a bona fide transaction for an adequate and full consideration in money or money's worth and the circumstances under which such a transaction should be excluded from the term QTF for purposes of § 274(a)(4). The Notices states that public comments should be submitted by February 22, 2019.
In addition, the IRS released Notice 2018-100, announcing that it will provide estimated tax penalty relief in 2018 to tax-exempt organizations that offer these benefits and were not required to file a Form 990-T last filing season. Additionally, some tax-exempt organizations will not exceed the $1,000 threshold below which an organization is not required to file a Form 990-T or pay the unrelated business income tax.