by Ashley Rehn and Cathy Lydon
The tax-exempt sector has received the much-anticipated interim guidance from the Internal Revenue Service regarding the application of qualified transportation fringe (QTF) benefits. Under this interim guidance, many tax-exempt organizations will now be required to pay unrelated business income tax. While this is not the relief the tax-exempt sector was expecting, there are continuing advocacy efforts to minimize the effects of the new regulations.
Until further guidance is issued, we recommend every tax-exempt organization, including organizations exempt from filing a form 990, review the following details and ensure compliance with the new QTF benefit treatment.
The Tax Cuts and Jobs Act, passed in 2017, disallowed a deduction for expenses of QTF benefits paid by taxpayers for the benefit of their employees. As part of this Act, a new code section was added that requires tax-exempt organizations to include the disallowed QTF expenses as taxable unrelated business income. In response, tax-exempt organizations and practitioners have submitted their concerns and recommendations to the IRS. The remainder of this article summarizes the interim guidance provided by the IRS in notice 2018-99 and 2018-100.
Ensure you can answer the following questions:
If the total expense of transportation or parking expenses exceeds $1,000 for any tax year, or a portion of a tax year after December 31, 2017, you may be required to file a form 990-T and pay the unrelated business income tax.
Act now to determine what your organization’s filing requirements are and prepare to pay the tax due. The IRS has provided the following transitional relief:
The IRS has defined what constitutes a qualified transportation fringe benefit, parking facility, and parking expenses, and provided clear exclusions from taxability along with a step-by-step process for determining applicability. These key details are summarized below. We recommend that you review these details and their specific applicability to your organization with your tax advisor.
Qualified transportation fringe (QTF) benefits include:
Determining the amount of QTF parking
Parking facility: includes indoor or outdoor garages and other structures, as well as parking lots and other areas, where employees may park on or near the business premises or near a location an employee may commute from. Aggregation of multiple parking facilities in a single geographic location is permitted, however multiple parking facilities in separate geographic locations may not be aggregated.
Parking expenses: include, but are not limited to, repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent or lease payments for the portion applicable to a parking facility (which should be allocated if not broken out separately). *Note, an allowance for depreciation of a parking structure is not considered a parking expense. Expenses paid for items not located on or in the parking facility, such as landscaping and lighting are also not included.
The IRS provided the following exclusions:
This article is a brief overview of the recently published interim guidance. For more information and a complete step-by-step analysis of your filing requirements contact either:
Ashley Rehn, CPA, Tax-Exempt Service Area Leader at Redpath and Company at firstname.lastname@example.org or (651) 407-5850; or
Cathy Lydon, CPA, Not-for-profit Industry Team Leader at Redpath and Company at email@example.com or (651) 255-9337.
Ashley Rehn is a senior tax manager at Redpath and Company providing tax compliance and consulting services for a variety of exempt organizations including charities, foundations, charter schools, member organizations, business leagues, civic organizations, and social clubs. She assists clients with tax planning, form 990 series preparation, and research. Specific areas of expertise include unrelated business income, private foundation compliance and excise tax reporting, entity structuring (including multiple entities and joint ventures), monitoring and analysis of public charity status, and board education. Ashley is holder of the Not-For-Profit Certificate I issued by the AICPA. The Not-for-Profit Certificate I offers a comprehensive, foundational overview of a non-profit’s unique financial needs. Certificate holders learn to recognize applicable GAAP reporting standards, identify state and federal filing requirements, understand best practices in board governance, risk assessment, and internal controls, and are able to outline the planning steps of a successful audit engagement. She has provided public accounting services at Redpath and Company since 2007. Ashley earned her CPA designation in 2007 and is an active member of the Nonprofit Financial Group (NFG), Association of International Certified Professional Accountants (AICPA), and the Minnesota Society of Certified Public Accountants (MNCPA). Ashley enjoys volunteering with Junior Achievement, Girls Scouts of the USA and within her local community. Ashley also served on the founding committee establishing Redpath’s charitable giving program allowing employees to donate a portion of their salaries which is then matched by Redpath & Company and donated to a designated charity within the community.More posts by Ashley Rehn
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