IRS Issues Partial Interim Guidance on UBIT and Parking

By Laurie Baskin posted 12-13-2018 14:28



On December 10, the Internal Revenue Service issued interim guidance (2018 - 99) aimed at addressing how nonprofits should value their liability for the new 21% Unrelated Business Income Tax (UBIT) on employee parking benefits in 2018. The guidance is temporary, will be followed by formal regulations, and does not address outstanding questions related to how the tax also applies to employee commuting benefits. A separate IRS notification (2018 - 100) offers to waive underpayment penalties for nonprofits that have not previously been required to report UBIT on Form 990-T and did not make estimated payments in 2018. "Treasury is sensitive to the concerns of the tax exempt community, and hopes this guidance can significantly limit the impact on non-profit groups," said Treasury Secretary Steven Mnuchin in a news release. The nonprofit community continues to press for full repeal of the new tax on nonprofits. Congress is considering a year-end tax package that includes repeal of the UBIT on parking and commuting benefits, and theatres are taking action by urging elected officials to vote to repeal the new tax. TCG will keep you posted as IRS guidance is analyzed and summarized for use by nonprofits.
This Update from the National Council of Nonprofits, December 10, 2018:
IRS Notice on Transportation UBIT
The IRS issued guidance on December 10, 2018 for calculating parking expenses for unrelated business taxable income purposes and provided penalty relief to nonprofits. See the IRS News Release.

  • IRS Notice 2018-99 (called "Interim Guidance") instructs for-profits and nonprofits on calculating which parking expenses are taxable. The discussion is nerdy, but here are key take-aways:
    • The Notice only applies to parking; no clarity or relief is provided for transit benefits, such as subway cards or bus passes.
    • Reserved employee parking spaces are automatically taxed. The Notice gives employers a grace period until March 31, 2019 to remove "reserved for" signs and avoid the automatic application of the tax, retroactive to January 1, 2018.
    • General parking spaces used by both the public and employees (without reserved spaces) require a four-step calculation. If the public typically uses more than 50% of the parking spaces, then the expenses for the whole lot are generally exempt.
    • The statute exempts UBIT of less than $1,000. The Notice makes clear that nonprofits with less than $1,000 in liability do not need to file a Form 990-T.
  • IRS Notice 2018-100 provides for waiver of tax penalties for nonprofits that failed to submit quarterly estimated tax payments for the new tax on transportation benefits. Generally, this means that if you usually don't submit quarterly payments in 2017, then you're off the hook for this year, but the taxes will still be due when you file your Form 990 (or whenever you submit UBIT payments at the end of your fiscal or calendar year).

What is the schedule for publication and public comments? Advocates hope to get this tax repealed before these dates occur, but here's the schedule the IRS announced. The Notices will be formally published in the Federal Register on Monday, December 24. Public comments will be due on February 22.
Do the Notices answer nonprofit questions about calculating the tax? Some of them, but not all. Here is what NCN shared with reporters:
Anyone who thought repeal of Section 512(a)(7) was the right solution has absolute proof with the publication of the IRS Notice today. In a law intended to create tax simplification, this Notice explains how to apply the section by requiring nonprofits of all sizes to follow a four-step calculus that will vary for each organization and can vary from month to month. The Notice provides minimal instruction, relieves some organizations of penalties that result from the IRS's own delay, and completely ignores the imposition of the new taxes on transit benefits, benefits that are mandated for some employers in various cities. Repeal of the section is the only reasonable response. Even the Chairman of the House Ways and Means Committee is calling for its repeal, showing that there is no support in Congress for taxing the transportation benefits of nonprofits.
Some early news reports
IRS issues guidance aimed at limiting impact of tax on nonprofits' parking expenses, The Hill, December 10, 2018
Treasury Softens Parking-Tax Hit for Churches, Nonprofits (paywall), Wall Street Journal, December 10, 2018
IRS gives tax guidance on parking expenses to nonprofits, Accounting Today, December 10, 2018