Guest Blog by David Thompson from National Council of Nonprofits
This morning, the National Council of Nonprofits submitted comments in response to proposed guidance on calculating the unrelated business income tax on expenses for employee parking (IRS Notice 2018-99). Visit, IRS Notice on Tax on Transportation Benefits, for more information. There are two things you can do to protect charitable nonprofits in the regulatory and legislative arenas:
- Submit Comments to Treasury/IRS by Friday: Nonprofits affected by the income tax on parking expenses are invited to submit commentsto the IRS by February 22. You are welcome to use any of the text from our comments below or submit a short statement and link to our comments. The comments don’t have to be complex or written in a special format or legal style. The government website, gov, advises that “a constructive, information-rich comment that clearly communicates and supports its claims is more likely to have an impact on regulatory decision making.” Also, see Taking the Mystery Out of Filing Comments on Proposed Rules for tried and true tips.
- Send your Comments to Your Congressional Delegation: Once you submit comments to Treasury/IRS, we encourage you to send a message to your congressional delegation stressing the need for repeal of this tax. There are many simple ways to do this. You can put “cc: [STATE} Congressional Delegation” at the bottom of a comments document delivered to Treasury/IRS; you can put the text of comments in a letter to Congress and also urge repeal; or you can use a variation of the Template Message you’ll find below that shares the Council of Nonprofits comments and expresses your call for repeal of the section.
On behalf of [NONPROFIT ORGANIZATION], I write to urge the immediate repeal of Internal Revenue Code Section 512(a)(7), the new income tax on expenses incurred by nonprofits for providing employee transportation benefits, such as parking and transit passes. This new tax is forcing hundreds of thousands of charitable nonprofits, houses of worship, foundations, and other nonprofits to conduct extensive and costly assessments of their expenses related to parking, subway cards, and bus passes to determine whether and how much in tax payments they must submit to the IRS. Notably, these payments are coming due in a matter of weeks unless Congress acts immediately to repeal the tax. Please see the comments of the National Council of Nonprofits responding to recent rulemaking that explain the many challenges that the tax is imposing on community-based organizations and demonstrate the urgent need for congressional action.
There is bipartisan support for eliminating this unfair tax on organizations dedicated to addressing problems in communities throughout the United States. Last December, the House passed a bill that, among other things, would have repealed the nonprofit transportation tax (see Section 505). Bills in the current 116th Congress, HR 1223 by House Majority Whip Clyburn (D-SC) and HR 513 by Representative Conaway (R-TX), also target Section 512(a)(7) for repeal. Bipartisan opposition in the Senate is equally strong, as evidenced by bills introduced last year and communications with the Treasury Secretary.
Repeal of Section 512(a)(7) is of the utmost urgency. We urge you to do everything in your power to ensure that legislation eliminating this levy passes Congress in the next few weeks, before resources in our state must be unjustly diverted from mission.
Background on the Notice
IRS Notice 2018-99, published on December 10, addresses parking issues, but ignores the impact of the new unrelated business income tax on transit benefits, like subway cards and bus passes. Stripped of the technicalities and citations, Notice 2018-99 provides the following instructions.
- Calculating Expenses: The income tax is levied on employer expenses and not on the value of the benefit to employees, which is a relief; but taxable expenses include such disparate items as salary and benefits of parking lot attendants; repaving costs; snow, ice, leaf and trash removal; interest; rent or lease payments, and property taxes. Many of these expenses are not easily separated from overall nonprofit operational costs and will require complex analyses and accounting fees solely to determine whether the employer has sufficient unrelated business taxable income.
- Reserved Parking: Designated and reserved employee parking signs will automatically trigger taxable income on employers pursuant to the Notice, unless the signs are taken down by March 31, 2019.
- Public Parking, or Not; It’s Complicated: Truly public parking is scot free, which is only reasonable; but the Notice mandates a four-step calculus for determining whether the parking is truly public and for allocating expenses. The calculations, combined with the identification of includable expenses, will likely cost more in accounting fees than many nonprofits will ultimately have to pay in taxes in the first year or two.
- $1,000 Threshold: The $1,000 income exemption existing in prior tax law still applies, and not every nonprofit with parking facilities will be required to file with the IRS, but, again, the cost of calculating the expenses and determining whether taxes are owed will cost more than the exemption.
Council of Nonprofits Comments
Our comments address the following seven areas of concern.
- Treasury and the IRS Must Exercise Inherent Administrative Authority to Prevent Manifest Injustice by Delaying Implementation Until Rulemaking Is Complete
- Guidance Limited to Parking Does Not Go Far Enough
- Inappropriate Application of Taxes to Compensation Reduction Agreements
- Taxing Government-Mandated Commuter Benefit Payments as “Fringe” Benefits is Patently Unfair
- Clarifying Status of Volunteers
- Clarifying Parsonage Parking
- Conflicts with Other Legal Authority; Additional Unintended Consequences from Treasury/IRS Action
We welcome your questions, comments, and insights.