Tax exempt organizations received good news prior to the end of 2019 with a provision included in the Consolidated Appropriations Act, 2020 that was signed into law on December 20, 2019. The provision repeals the requirement in Internal Revenue Code Section 512(a)(7) for not-for-profits to treat as unrelated business taxable income (UBTI), amounts paid for parking and transportation benefits they provide to their employees.
Many not-for-profits were surprised at the scope and impact of this “parking tax” that was implemented as part of the Tax Cuts and Jobs Act of 2017 to put tax exempt entities on an even playing field with for-profit entities that are no longer allowed a deduction for these transportation and parking fringe benefits. Nevertheless, strong lobbying efforts from the not-for-profit sector over the last year were successful in convincing lawmakers of the undue hardship this new tax was placing on the tax exempt community.
Even better news is that the repeal is retroactive for all amounts paid or incurred after 2017. This means that not-for-profit organizations can amend any previously filed Form 990-T that reported the tax, and obtain a refund. In addition, refunds will need to be requested for any estimated taxes paid for future years that related to the tax. Further guidance is expected in the near future from the IRS on the refund process.
Please reach out to a member of your YHB not-for-profit team should you have any questions regarding how the repeal of the parking tax will impact your organization.