Tax Update: Repeal of Nonprofit UBI “Parking Tax” Announced

BACKGROUND
At the end of 2017, the Tax Cuts and Jobs Act (TCJA) added Section 512(a)(7) to the Internal Revenue Code, which required not-for-profit organizations to increase their unrelated business taxable income for certain fringe benefit expenses. This became commonly known as the “Parking Tax.” Despite certain guidance passed at the end of 2018, the provision caused concern amongst tax-exempt organizations because of the prospect of increased tax liability, the lack of clarity for determining the taxable amount of such benefits, and the additional administrative burdens triggered for certain organizations.

On December 20, 2019, President Trump signed into law government funding legislation for the 2020 fiscal year that includes a provision repealing Section 512(a)(7), the Unrelated Business Income Tax (UBIT) on parking and transportation fringe benefits. The repeal applies to amounts paid or incurred after December 31, 2017.

HOW THIS MAY IMPACT YOUR ORGANIZATION
Affected organizations may file an amended Form 990-T to claim a refund for any taxes paid related to such qualified transportation fringe benefits. Organizations are encouraged to consult their tax advisors as to whether a state tax refund is available as well. The expectation is that the IRS will publish additional guidance regarding the refund process, and we will be sure to keep you posted.

If you or someone in your organization would like additional information concerning this recent repeal, please contact:

Lauren Caldwell, CPA
Manager
KatzAbosch

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