The Tax Cuts and Jobs Act included a change to preclude employers from deducting qualified transportation fringe benefit expenses, including qualified parking, paid or incurred after December 31, 2017.
Yesterday, the Internal Revenue Service (IRS) issued interim guidance regarding the treatment of these fringe benefit expenses paid or incurred after Dec. 31, 2017. The guidance will help taxpayers determine the portion of parking that is nondeductible. The guidance also helps tax-exempt organizations determine how these nondeductible parking expenses create or increase unrelated business taxable income (UBTI) for not-for-profit organizations. In some cases, the organization may avoid having to file a Form 990-T, Exempt Organization Business Income Tax Return, altogether.
The guidance issued by the IRS includes examples for employers with third party contracts as well as employers who own or lease the parking lot, including a four-step reasonable method for completing the calculation. 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 use any reasonable method for determining nondeductible parking expenses related to employer-provided parking until further guidance is issued.
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. Such a change made in parking arrangements will apply retroactively to Jan. 1, 2018. By making this change, many churches, schools, hospitals and other tax-exempt organizations may be able to reduce their associated UBTI.
The IRS also announced yesterday 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.