Free Parking for Employees? You May Owe UBIT Taxes

A little-noticed provision in the Tax Cuts and Jobs Act of 2017 could force community foundations – and the nonprofits that you support – to file Form 990-T, the tax return used to report unrelated business taxable income (UBTI).  But the law is frustratingly vague.  So, add this problem to the list of insomnia-producing worries to keep you awake at night.

The TCJA created a new section 512(a)(7) which specifically targets transportation fringe benefits provided by tax-exempt organizations to their employees.  The law prevents a for-profit organization from deducting qualified transportation fringe benefit (QTFB) when computing taxable income; the mirror image law for nonprofits forces a charity to pay taxes on the value of QTFB provided by employees.  Charities must include in UBTI the value of QTFB that would be disallowed as deductions to a taxable entity.

Qualified parking is considered a QTFB.  Qualified parking is defined as “parking provided to an employee by an employer … on or near the employer’s business premises.”  If you have a parking lot close to your offices, and your staff is allowed to park there for free, you might have to file a Form 990-T and report the value of that fringe benefit as taxable income.

Sound like a mess?  Yes, it is.  And from what I read the new law is very unclear.  Groups ranging from the National Council on Nonprofits to the American Institute of Certified Public Accountants have asked the IRS for clarification.  Does the IRS really want millions of nonprofit organizations to incur the time and expense required to file a Form 990-T, when they might otherwise not have to do so?

I’m going out on a limb here, but I’m going to predict that the Feds will come to their senses and issue guidelines that will relieve charities from the burden of filing a 990-T just to report free parking.  But, as with any tax matter, you should have a conversation with our tax preparation firm to determine what you should do for 2018.  In the meantime, go ahead and count sheep instead of parking spaces --- and enjoy a good night’s sleep.