Federal Tax Law Change Affects Employee Parking
Although the Tax Cuts and Jobs Act (the “Act”) reduced federal taxes for many businesses and individual taxpayers, it also included several measures aimed at raising revenues to offset the cost of the tax cuts. One such provision was a revision to Section 274 of the Internal Revenue Code to no longer allow a deduction for the expense of any qualified transportation fringe (QTF) benefit paid or incurred after Dec. 31, 2017, provided to an employee by a business. Not-for-profit (NFP) organizations are also affected since the Act includes a similar provision to increase unrelated business taxable income (UBTI) of an exempt organization by any amount paid or incurred after Dec. 31, 2017, for any QTF not allowable by Section 274. Notably, the QTF definition includes qualified parking provided to employees.
The new rules also apply, in varying degrees, to three other QTF benefits that may be provided to employees: (1) transportation by highway vehicle between an employee’s residence and the place of employment, including carpooling allowances; (2) transit passes; and (3) bicycle commuting reimbursements. If your NFP organization provides any of these benefits, including through a salary reduction agreement, you should consult with your accounting firm to assess whether these benefits could create additional UBTI exposure. This article is focused on employee parking.
For the purposes of the new rule, parking benefits includes any provision of parking by a NFP organization to its employees, contracted workers, or specifically identified guests/volunteers. This includes parking the organization pays a third party for as well as a parking lot next to the organization’s building on property that it owns or leases. If you have parking at your facility, whether it is a multi-story garage or a surface lot, your organization must evaluate whether it is providing parking benefits.
The Internal Revenue Service (IRS) issued interim guidance in December 2018 on the treatment of QTF fringe benefit expenses paid or incurred after Dec. 31, 2017. The document provides further guidance to NFP organizations to determine how these nondeductible parking expenses create or increase UBTI. The guidance goes through many examples of how to apply the rules to various common scenarios. According to LeadingAge National, because this guidance was issued late in the year, many taxpayers have already adopted reasonable methods in 2018 to calculate their expenses. The IRS stressed that organizations may rely on this guidance or use any reasonable method for determining nondeductible parking expenses related to employer-provided parking in owned or leased parking facilities.
Potentially affected members should consult with their accounting and auditing firms as soon as possible on employee parking or other QTF benefits they offer. LeadingAge NY associate member The Bonadio Group has prepared a guide, Unrelated Business Income for Employee Parking Redefined, and another associate member, BKD CPAs and Advisors, has posted an informative article on the subject.
LeadingAge National is continuing to work to get this provision repealed through legislation. It is too early to tell whether this Congress will take up tax issues, but there will be efforts to support a broader charitable deduction if tax return data show a decrease in giving. That could present an opportunity for the QTF benefit tax issue to be attached to those efforts.
Contact: Dan Heim, firstname.lastname@example.org, 518-867-8866