Thursday, April 11, 2019
On March 27, a House Ways and Means Committee hearing on “The 2017 Tax Law and Who it Left Behind” covered a wide range of TCJA-related topics, specifically including the new UBIT rules on transportation fringe benefits. By way of background, Section 274(a)(4) now disallows for-profit employers a deduction for any qualified transportation fringe (as defined in section 132(f)) provided to an employee. Of course, the loss of a deduction will not affect a nonprofit employer, so the TCJA also added new code Section 512(a)(7), which provides that the
[u]nrelated business taxable income of an organization shall be increased by any amount for which a deduction is not allowable under this chapter by reason of section 274 and which is paid or incurred by such organization for any qualified transportation fringe (as defined in section 132(f)), any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)), or any on-premises athletic facility (as defined in section 132(j)(4)(B)).
This article by the Nonprofit Times regarding the portions of the TCJA hearing that dicsussed parking highlights a quote by Representative Tom Suozzi:
'...If you are a religious institution, you’re a church, a synagogue, or you’re a mosque, and you give parking permits to your employees, or if you give them transportation allowances, they have to pay taxes on it now,' he said. 'And not just the cost of the taxes, now you have to hire an accountant who will help you fill out tax forms.'
It is probably just me, but I’m not about to get the vapors over the fact that an institution that is large enough to own offer parking benefits has to get an accountant. I’m also somewhat nonplussed about the realization that churches are in fact, charities, and are subject to … rules. Be that as it may, the expansive scope of Section 512(a)(7) does seem harsh, as the rule disallows the costs of the parking facility itself, not just the fair market value of the benefit provided to the employee. IRS Notice 2018-89 sets out some guidance on the matter, but it does get rather complicated for those entities that own and operate parking facilities, rather than simply provide a parking allowance to their employees. I do suspect that many institutions will simply opt to treat their employee parking as compensation, and thereby bypass the UBIT issue.
According to the same article, at least three bills are pending to repeal the UBIT tax on parking and there appears to be bipartisan support, so it may be that this blows over sooner than it takes to find street parking in downtown Manhattan.