As part of the Tax Cuts and Jobs Act, the nonprofit “parking tax” was enacted, requiring nonprofits to pay tax on the cost of providing parking and other certain transportation fringe benefits for their employees.

However, on December 20, 2019, Congress approved a spending bill, repealing the parking tax for nonprofit entities, retroactively.

In the following Q&A, Thomas Colegrove, a Principal in Gorfine, Schiller & Gardyn’s (GSG) Tax Services,discusses the recent repeal and how the tax still affects for-profit entities.

Q: What exactly is the “parking tax,” and who’s benefitting from the repeal?

A: Effective January 1, 2018, nonprofits were required to pay tax on the cost of providing qualified transportation fringe benefits for their employees. This included benefits such as parking and certain other commuter benefits. The tax was administered in the form of unrelated business income tax, or UBIT, and the expenses were to be included in income on Form 990-T.

This past December, Congress righted their wrong and repealed the tax, retroactively. This means the taxpayers who already filed forms and paid tax are due a refund.

Q: What do nonprofits need to do in terms of filing for a refund?

A: The IRS published information to their website, which provides a process for filing amended returns and claiming a refund. There's no streamlined process, as many speculated, but organizations must file an amended return. The information published to the IRS website gives very specific instructions for completing the amended Form 990-T.

Q: Does the parking tax affect for-profit entities?

A: The repeal of the tax on qualified transportation fringe benefits only affected Internal Revenue Code Section 512(a)(7), which is the nonprofit statute, meaning that for-profit entities are still disallowed similar deductions under Section 274.

Q: Where should both nonprofits and for-profit companies go for help regarding the parking tax?

A: Nonprofits should hear from their CPA firm on how to begin the process of claiming a refund on an amended return.

For-profit entities who have parking lots for employee use or offer commuter benefits should reach out to their CPA firm to obtain more information as to how the laws of the deduction may affect them.

For those looking for more information regarding the retroactive repeal of the parking tax for nonprofits, please contact GSG.

Tom’s Bio:

Thomas Colegrove is a Principal in GSG’s tax department and has over 10 years of experience in public accounting with a focus in serving tax-exempt organizations, employee benefit plans, and the real estate industry at large. He is responsible for managing the workflow of Forms 990 & 5500 within the tax department. His work also includes tax planning and preparation for individuals, trusts, estates, partnerships, S-Corporations, and C-Corporations spanning many different industries.

He assists tax-exempt clients in applying for tax-exempt status by filing Form 1023/1024 and clients who have had their tax-exempt status previously revoked. He offers tax planning and consulting to tax-exempt clients who are engaged in Unrelated Business activities and must file Form 990-T as well as applicable state filings.