Repeal of Parking UBTI
Ryan J. McDonell, CPA
7 January 2020
The Tax Cuts and Jobs Act tax reform in 2017 added (to the dismay of many) IRC section 512(a)(7) which effectively created unrelated business taxable income (UBTI) for the expenses of providing qualified transportation fringe benefits. Or, to oversimplify, this code section made employee parking taxable for tax-exempt organizations.
Organizations were thrust into dealing with the administrative burden of information collection, educating employees, and in some cases rethinking the layout and signage of parking available to employees. Some organizations had never previously been subject to 990-T filing requirements, which brought up questions about estimated tax payment requirements and potential penalties. All of this happened during a year that saw mixed tax rates for fiscal year filers. IRS guidance for calculating the number of parking expenses came nearly a year after the tax reform Act in December of 2018 in the form of Notice 2018-99, which still left organizations and practitioners with unanswered questions.
Meanwhile, the question of whether the parking expenses should even be UBTI loomed over organizations as advocacy groups wasted no time in pushing for a repeal of the code section, a sentiment embraced by several legislators, who tried to erase this provision from the code.
On December 20, 2019, organizations received an early New Year’s gift when the President signed into law the year-end spending bill which, among other changes, repealed section 512(a)(7). The repeal of this provision is retroactive to take effect as if included in the Tax Cuts and Jobs Act. This means that not only do organizations not have to pay tax on these expenses going forward, but taxes previously paid based on this section should be refundable to organizations. At the time of this writing, the process for receiving a refund has not yet been specified, but practitioners expect that the IRS will provide guidance on how to
obtain a refund soon. O’Connor & Drew will monitor and communicate this information as it becomes available.