IRS Provides Guidance, Some Relief on Transportation Tax Issue

The IRS has issued some guidance that eases the impact of the new 21 percent tax on transportation fringe benefits such as free parking and mass transit passes. One notice provides some interim instruction on how to calculate the increase to tax owed, and the other notice provides relief from the requirement to make estimated tax payments for certain nonprofit organizations.

To refresh, the Tax Cuts and Jobs Act late last year added Section 512(a)(7) to the tax code. This section provides that a tax-exempt organization’s unrelated business taxable income is increased by the amount of any qualified transportation fringe benefit. Essentially this means that providing benefits such as free parking and mass transit passes will subject tax-exempt organizations to taxation—many of which are unfamiliar with the UBIT landscape.

Notice 2018-99  states that Treasury intends to issue proposed regulations on the topic, but until then tax-exempt organizations that own or lease parking facilities where their employees park may use any reasonable method to determine the amount of the increase in UBTI under Section 512(a)(7). The notice provides several examples.

Notice 2018-100  notes that many organizations that will owe tax under 512(a)(7) may be paying unrelated business income tax and making estimated tax payments for the first time. As such, in the interest of sound tax administration, the notice waives any additional tax that would be owed for failure to make timely estimated tax payments for tax-exempt organizations that:

  • provide qualified transportation fringe benefits;
  • were not required to file a Form 990-T for the tax year immediately preceding the organization’s first tax year ending after December 31, 2017;
  • timely file the Form 990-T and pay the amount reported for the taxable year in which relief is granted; and
  • write Notice 2018-100 on the top of the Form 990-T.

This article notes that many nonprofits have pressured Republican leaders to repeal the tax. House Ways and Means Chairman Kevin Brady, who previously defended the provision, called for its elimination in a revised year-end package released earlier this week.

“We want those nonprofit organizations to focus on their core missions,” Brady told reporters. “Repealing this allows them the certainty to do that.”

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