Qualified Transportation Fringes for Nonprofits

Posted on Wednesday, December 12, 2018

One of the provisions included in the Tax Cuts and Jobs Act approved on December 20, 2017 relates to nonprofit organizations and unrelated business income (UBI) taxes on qualified transportation fringes. The IRS released Notice 2018-99 to further explain the new law on December 10, 2018.

The provision requires nonprofits to include certain transportation and parking fringe benefits paid or incurred after December 31, 2017 in UBI that are no longer deductible under IRC section 274 for for-profit entities. Qualified transportation fringes include:

Transportation in a commuter highway vehicle between the employee’s residence and place of employment
Any transit pass
Qualified parking (parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work

The amount included in unrelated business income should include the amount of parking expenses allocable to reserved spots. Parking expenses include repairs, maintenance, utility costs, insurance, property taxes, interest, snow removal, leaf removal, trash removal, cleaning landscape costs, parking lot attendant expenses, security and rent or lease payments. Depreciation is not included. There is also a $1,000 specific deduction for UBI.

Many nonprofits own or lease a parking lot for their employees to park, which would be included in number 3 above. However, Section 274(e)(7) provides an exception for expenses for goods, services and facilities made available by the organization to the general public. The general public includes the organization’s customers and potential customers, clients, visitors, individuals delivering goods or services to the organization, patients of a health care facility, students of an educational institution, and congregants of a religious organization. The general public does not include employees, partners or independent contractors of the organization.

If the organization owns or leases a parking lot, the amount included in UBI may be calculated using any reasonable method. The IRS released the following steps deemed to be considered a reasonable method.

Determine the amount of parking spots reserved exclusively for employees. These are spots that have specific signage or that are in a separate area with limited access to employees only. Calculate the percentage of reserved employee spots to the total number of parking spots. This amount is included in UBI (Note, to not be considered reserved parking retroactive to January 1, 2018, organizations have until March 31, 2019 to change the reserved parking signage.)
Determine the primary use of the remaining parking spots. If the primary use of the remaining spots is for the general public, then these fall under the exception for expenses to the general public. Primary use is defined as more than 50%.
Determine the amount of nonemployee reserved parking spots. This is the percentage of remaining parking spots that are not available for the general public but are reserved for nonemployees and is included in UBI.
Determine the use of the remaining parking spots during the normal hours of the organization’s activities on a typical day. Any amounts for the general public are not included in UBI.

So for those organizations that own or lease a parking lot that is available to the general public with no reserved parking spots, there is no amount to report as UBI.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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