IRS Provides Additional Guidance for NPOs Providing Transportation Benefits to Employees
Since the passing of the Tax Cuts and Jobs Act (TCJA) in late 2017, there has been much speculation and little guidance provided for how nonprofit organizations must deal with the new rules surrounding the treatment of transportation and parking benefits provided by nonprofit employers to their employees.
In addition to providing examples for the practical application of the rules, the Notice provided a few key takeaways:
- Parking (whether it be on-site or off-site) that is provided by nonprofit employers for employees in association with their employment is considered a Qualified Transportation Fringe (QTF) benefit. Consequently, it is subject to the rule change and may create a tax obligation and require the filing of form 990-T (Exempt Organization Business Income Tax Return).
- Until further guidance is issued, nonprofits that own or lease parking facilities where their employees park may calculate the potential amount to be included as unrelated business taxable income (UBTI) using any reasonable method, however, the Notice provides a four step methodology that will be automatically deemed a reasonable method.
- Under a special rule, employers can change their parking arrangements to decrease or eliminate their reserved employee spots by March 31, 2019 and treat those spots as not reserved for employees retroactively to January 1, 2018. (Note: reserved employee parking spaces factor into the four step methodology prescribed in the Notice.)
- Outlined separately in IRS Notice 2018-100, some nonprofit organizations providing QTF benefits may receive relief from IRS estimated tax penalties to the extent that underpayment results from the changes in tax treatment of the QTF benefits. The relief applies to nonprofit organizations that were not required to file a Form 990-T in their prior filing season.
While the interim guidance provided by the Internal Revenue Service clarifies the intent and practical application of the rules, there are still many complexities and factors that each nonprofit organizations must consider on an individual basis. Nonprofits providing transportation and parking benefits to employees should consult their tax advisors to evaluate the full impact of the changes and potential consequences.