Since its inception, confusion has reigned with regard to the Parking Tax. Earlier this week, the IRS issued long-awaited guidance on the Parking tax. That guidance may even give your nonprofit a break (and maybe a tax-break).
Before we go further, are you asking, What Parking Tax? In the 2017 Tax Cuts and Jobs Act, Congress decided that parking and other transportation fringe benefits nonprofits provide employees are taxable as unrelated business taxable income (“UBTI”). UBTI must be reported to the IRS on Form 990-T.
The Parking Tax has led to much confusion. Until this week, neither the IRS or Congress gave any guidance on how to allocate parking expenses. For example, if a nonprofit operates a surface parking lot with five reserved spaces for staff, how should it determine the expenses allocable for those spaces, and thus the amount of UBTI?
The IRS notice is an attempt to ease the confusion over such questions. It allows nonprofits to calculate their transportation fringe benefit expenses using “any reasonable method.” It also includes examples. The notice further provides nonprofits with potential tax relief. If a nonprofit to decreasing or eliminates parking spots reserved for employees by March 31, 2019, that change will be effective retroactively to January 1, 2018. The result will be reduction in UBTI and the tax paid on it.
Form 990-T is a form filed by nonprofits to report their unrelated business taxable income. For many nonprofits, the Parking Tax means they must file Form 990-T for the first time. The only exception is if a nonprofit’s total UBTI is less than $1,000. Be sure that, when filing an extension for Form 990, your nonprofit separately files an extension for Form 990-T, as it is separate tax form.
Until further guidance is issued by the IRS, nonprofits may rely on this notice to determine their transportation fringe benefit UBTI. If your nonprofit provides parking to employees or owns a parking lot – or provides other transportation benefits to employees, promptly consult the nonprofit’s tax advisor.