Tax-exempt organizations that paid unrelated business income tax (UBIT) on the value of employee parking may claim a refund for those taxes, the IRS announced. To do so, they should file an amended Form 990-T, following guidance the IRS updated Jan. 21 on its website.
The 2017 Tax Cuts and Jobs Act required tax-exempt organizations to pay a 21 percent UBIT on subsidized parking they provide to employees, beginning in 2018. However, tax legislation signed into law at the end of 2019 retroactively repealed the increase in UBIT paid or incurred by tax-exempt organizations for employer-provided parking over the past two years.
Nonprofit organizations hailed the repeal. "This tax unfairly expanded the UBIT statute to tax basic parking and transit benefits that nonprofits provide to their employees," said Susan Robertson, American Society of Association Executives' interim president and CEO. Repeal will "allow associations and other nonprofit organizations to focus their limited resources on mission-oriented programs and services that benefit society."
The December 2019 legislation repealed the parking tax on nonprofit organizations "in its entirety and retroactive to the date of its enactment—in other words, it is as if Section 512(a)(7) never existed," according to law firm Seyfarth, citing the section of the Tax Cuts and Jobs Act relevant to the tax.
Tax-exempt organizations "may cease making any estimated tax payments related to the repealed parking tax," Seyfarth advised, and "nonprofits can consider promptly reinstalling 'employee parking only' signage that was removed in response to the 2017 act."
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"The repeal of this 'parking lot tax' will be a welcome relief for tax-exempt organizations, in particular those that had no other unrelated trade or business activity or were not otherwise required to file the Form 990-T," wrote Jason Havens and Kelly Hellmuth, tax attorneys at law firm Holland & Knight.
"The claims for credit or refund must be filed within three years from the time the original return was filed or two years from the time the tax was paid, whichever is later," they noted.
According to Steven M. Packer, senior manager of the tax accounting group at Duane Morris, a tax, accounting and litigation consulting firm, "tax-exempt organizations may be able to claim a refund or credit for UBIT amounts paid for taxable years beginning in 2017 and 2018 and for any required quarterly estimated tax payments paid on UBIT in 2019."
Organizations that have paid UBIT should prepare and file an amended Form 990-T by writing "Amended Return" at the top of Form 990-T. If the amended return is being filed solely to claim a refund due to the repeal of Section 512(a)(7), write "Amended Return—Section 512(a)(7) Repeal," Packer advised. He also noted that taxpayers must also attach a statement indicating the line numbers on the original return that were changed and the reason for each change, for example, "repeal of Section 512(a)(7)."
Nonprofit employers "should exercise caution as to whether the original Form 990-T relates to a tax year beginning in 2017 or 2018, because the 2018 Form 990 contained a specific line for reporting UBTI under Section 512(a)(7), while the 2017 Form 990-T did not," Packer said. "Errors in preparation will invite IRS inquiry and may delay refunds."
Organizations should also consider whether a refund of state UBIT paid as a result of the tax change is available, he advised, "although the process and requirements for any such refund claims will likely differ on a state-by-state basis."
Related SHRM Articles:
President Signs SHRM-Backed Measures that Include Cadillac Tax Repeal, SHRM Online, December 2019
Transit and Parking Benefits: Design Programs to Increase Workers' Engagement, SHRM Online, March 2017