December 21, 2018
House Attempts to Repeal the “Parking Tax”; IRS Issues Guidance
The House Ways and Means Committee assembled a year-end tax package that contained retirement, technical corrections, and other tax provisions it hoped would be considered in the Senate prior to the end of the year. The bill included the repeal of the so-called “parking tax,” enacted last year as part of the Tax Cuts and Jobs Act (TCJA). Unfortunately, the Senate adjourned shortly after passing a stopgap funding bill to keep the federal government open through February 8, 2019, without including any tax provisions. Although it is unclear how the final funding conflict between the House and Senate will be resolved, a last ditch attempt to get the Senate to revisit these tax changes seems unlikely.
The TCJA created the new and complicated parking tax on nonprofit employers who offer parking and other mass transit benefits to their employees. The thinking was, since Congress was eliminating the corporate tax deduction for for-profit businesses that offered these benefits, it was only fair to level the playing field and impose this new tax on nonprofit employers.
The parking tax would require churches, colleges and universities, and charities to pay unrelated business income taxes (UBIT) on these expenses and file a Form 990 with the IRS. An outcry over this provision from faith-based, higher education, and other charitable groups led to Congressional efforts to try and repeal the provision.
Rep. Kevin Brady (R-TX), Chairman of the House Ways and Means Committee, included language in his year-end tax bill that would have repealed the parking tax. However, the Senate had no plans to take up the Brady legislation in its entirety. While the nonprofit community was poised to push the Senate to include this repeal if the Senate were considering adding tax provisions to its final government funding measure, ultimately Senate leadership decided to expedite their bill and keep it clean of any tax items.
In the meantime, the IRS issued interim guidance to help nonprofits try and estimate and implement the new tax. The new rules are meant to assist nonprofits in determining the amount of parking expenses that are no longer tax deductible. They also help tax-exempt organizations determine how these nondeductible parking expenses create or increase UBIT.
The IRS acknowledges that this guidance falls late in the year and employers may have already adopted reasonable methods in 2018 to determine the amount of their nondeductible parking expenses. The IRS is allowing employers to rely on the guidance or, until further guidance is issued, use any reasonable method for determining nondeductible parking expenses related to employer-provided parking.
A key part of this guidance is a special rule enabling many employers to retroactively reduce the amount of their nondeductible parking expenses. Under this rule, employers will have until March 31, 2019, to change their parking arrangements to reduce or eliminate the number of parking spots they reserve for their employees. While this may help reduce the impact of the tax, in many locations, eliminating reserved parking will result in a huge burden for employees.
Ending the parking tax remains a bipartisan priority, and the nonprofit community will continue to work on its repeal.
The TCJA created the new and complicated parking tax on nonprofit employers who offer parking and other mass transit benefits to their employees. The thinking was, since Congress was eliminating the corporate tax deduction for for-profit businesses that offered these benefits, it was only fair to level the playing field and impose this new tax on nonprofit employers.
The parking tax would require churches, colleges and universities, and charities to pay unrelated business income taxes (UBIT) on these expenses and file a Form 990 with the IRS. An outcry over this provision from faith-based, higher education, and other charitable groups led to Congressional efforts to try and repeal the provision.
Rep. Kevin Brady (R-TX), Chairman of the House Ways and Means Committee, included language in his year-end tax bill that would have repealed the parking tax. However, the Senate had no plans to take up the Brady legislation in its entirety. While the nonprofit community was poised to push the Senate to include this repeal if the Senate were considering adding tax provisions to its final government funding measure, ultimately Senate leadership decided to expedite their bill and keep it clean of any tax items.
In the meantime, the IRS issued interim guidance to help nonprofits try and estimate and implement the new tax. The new rules are meant to assist nonprofits in determining the amount of parking expenses that are no longer tax deductible. They also help tax-exempt organizations determine how these nondeductible parking expenses create or increase UBIT.
The IRS acknowledges that this guidance falls late in the year and employers may have already adopted reasonable methods in 2018 to determine the amount of their nondeductible parking expenses. The IRS is allowing employers to rely on the guidance or, until further guidance is issued, use any reasonable method for determining nondeductible parking expenses related to employer-provided parking.
A key part of this guidance is a special rule enabling many employers to retroactively reduce the amount of their nondeductible parking expenses. Under this rule, employers will have until March 31, 2019, to change their parking arrangements to reduce or eliminate the number of parking spots they reserve for their employees. While this may help reduce the impact of the tax, in many locations, eliminating reserved parking will result in a huge burden for employees.
Ending the parking tax remains a bipartisan priority, and the nonprofit community will continue to work on its repeal.
For more information, please contact:
Karin Johns