IRS Offers Relief for 2018 Taxes on Parking Benefits

Interim guidance clarifies taxes that employers owe for providing parking spots

Stephen Miller, CEBS By Stephen Miller, CEBS December 14, 2018
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The IRS has clarified how all employers can calculate the tax on qualified parking benefits that took effect this year. The guidance also provides some relief for nonprofit, tax-exempt organizations, which now must pay a 21 percent unrelated business income tax (UBIT) on subsidized parking they provide to employees.

On Dec. 10, the IRS issued the interim guidance in Notice 2018-99.

The previous lack of guidance for tax-exempt organizations "created a lot of confusion and conflicting opinions about how nonprofits should go about calculating their tax liability to comply with the requirement," according to the UBIT Coalition, representing nonprofit employers opposed to the parking-benefits tax.

"Treasury is sensitive to the concerns of the tax-exempt community and hopes this guidance can significantly limit the impact on nonprofit groups," stated Secretary Steven T. Mnuchin.

"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," the IRS acknowledged. Under the new guidance, employers can, "until further guidance is issued, use any reasonable method for determining nondeductible parking expenses related to employer-provided parking."

Taxes Owed for 2018

Last December, President Donald Trump signed into law the Tax Cuts and Jobs Act, which eliminated the business deduction employers had received for qualified parking and mass-transit benefits. The law kept employer-funded parking and mass-transit subsidies tax-exempt for employees within annual limits.

Nonprofits pay UBIT on these benefits only up to the per-employee per-month amount that's tax-free to employees ($260 in 2018, rising to $265 in 2019). These organizations must file with the IRS a Form 990-T, Exempt Organization Business Income Tax Return. 

Tax-exempt employers are liable for UBIT on qualified parking regardless of whether they pay for employees' parking directly or reimburse employees for regular parking expenses. However, a tax-exempt organization with less than $1,000 of unrelated business taxable income (UBITI) is not required to file Form 990-T or to pay UBIT on that amount.

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Pros and Cons

"As with many IRS guidance projects, there are pros and cons to Notice 2018-99," said David Fuller, an attorney in the Washington, D.C., office of McDermott, Will and Emery.

On the positive side, for instance, employers may adopt any reasonable method for 2018—and until such time as future proposed regulations are published—to determine the amount of parking expenses that are no longer tax-deductible and, for tax-exempt employers, the increase in unrelated business taxable income for parking benefits.

However, "the guidance may have a disproportionately negative impact on employers that own their parking lots and incur large continuing expenses for upkeep, such as expenses for trash and leaf removal, snowplowing, landscaping, security, insurance, and property taxes—most of which are not separately broken out from the broader place of business and surrounding property," Fuller noted. "Employers, such as those in large cities, that pay a fixed amount to lease parking spots or have parking spots included as part of a larger lease, will be significantly less affected."

Retroactive Tax Relief

A key part of the new guidance is a special rule that enables many employers to retroactively reduce the amount of their nondeductible parking expenses. 

Employers that own or lease a parking facility are taxed on the number of spots exclusively reserved for their employees. Under the special rule, employers will have until March 31, 2019, to change their parking arrangements to reduce or eliminate the number of employee-reserved parking spots.

"By making this change, many churches, schools, hospitals and other tax-exempt organizations may be able to reduce their associated UBTI," the IRS explained. In some cases, the organization may avoid having to file a Form 990-T altogether. Such a change made in parking arrangements will apply retroactively to Jan. 1, 2018.

"Employers should consider eliminating reserved parking before next April, even those spots provided to reward employees for a limited amount of time" such as for the employee of the month, Fuller advised.

Relief for Underpaying Estimated Taxes

In companion guidance, Notice 2018-100, the IRS provides transitional tax-penalty relief for tax-exempt organizations that underpaid 2018 quarterly estimated UBIT on parking benefits. The relief is available if this was the first year tax-exempt employers were required to file Form 990-T and pay UBIT, and if they now "timely pay the amount reported for the taxable year for which relief is granted."

The Treasury Department and the IRS seek comments for future guidance to clarify the treatment of these qualified transportation benefit expenses.

Full Repeal Sought

In July, Rep. Mark Walker, R-N.C., introduced H.R. 6460, the LIFT for Charities Act, to repeal the UBIT altogether on amounts that tax-exempt organizations pay or incur for benefits not entitled to a business tax deduction, such as benefits for transportation, parking and onsite athletic facilities. In August, Sen. James Lankford, R-Okla., introduced S. 3332, a Senate version of the bill. Repeal advocates hope to see these bills reintroduced in 2019.

Related SHRM Articles:

Commuting and Adoption Benefit Amounts Rise in 2019SHRM Online Benefits, November 2018

What Happens After Tax Law Scuttles Employers' Deduction for Commuting Benefits?, SHRM Online, December 2017

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