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Parking expenses and tax-exempt organizations

Posted on December 21, 2018

Parking expenses are no longer deductible for tax-exempt organizations, causing headaches and confusion for taxpayers and exempt business owners.

Here’s what to know.

Teipen Selanders Poynter & Ayres want their clients to know that the IRS has just issued interim guidance about how to handle 2018 business parking expenses that are no longer tax deductible.

The new guidance will help tax-exempt organizations determine how nondeductible parking expenses create or increase unrelated business taxable income (UBTI).

The IRS acknowledges that this information falls late in the year and taxpayers that own or lease parking facilities may have already adopted methods to deal with their nondeductible parking expenses. But, TSPA CPAs say, better late than never!

Here’s what the guidance spells out:

  • Many employers can retroactively reduce the amount of their nondeductible parking expenses. Employers will have until March 31, 2019, to change their parking arrangements to reduce or eliminate the number of parking spots they reserve for their employees.
  • By making this change, many churches, schools, hospitals and other tax-exempt organizations may be able to reduce their associated UBTI.
  • Some organizations may avoid having to file a Form 990-T, Exempt Organization Business Income Tax Return,
  • These changes made to parking arrangements now will apply retroactively to Jan. 1, 2018.

The IRS also announced that it will provide estimated tax penalty relief in 2018 to tax-exempt organizations that offer the above-mentioned parking benefits and were not required to file a Form 990-T last filing season.

With this additional UBIT, some tax-exempt organizations will now exceed the $1,000 UBIT income threshold below which an organization is not required to file a Form 990-T or pay the unrelated business income tax.

Any year sweeping tax reform is passed, there are bound to be questions. This particular issue was a perplexing one for exempt businesses. If you have questions relating to this issue, ask us. We can help you determine how this regulation affects you.