Not-for-Profit Notebook

Practical insight and analysis on the accounting, audit and tax issues impacting not-for-profit organizations.

Remove "Employee Parking" Signs by March 31

By now you probably know that the Tax Cuts and Jobs Act that was signed into law in December 2017 eliminated the business deduction for Qualified Transportation Fringes (QTFs).
In a prior article, we discussed the effects of Tax Exempt Organizations offering their employees the ability to pay for their qualified commuting costs on a tax-free basis. You can read more about that here.Employee Parking 

Similarly, if a Tax Exempt employer provides parking for an employee, either by paying a third party or by owning or leasing the parking facility, those amounts may be considered Unrelated Business Taxable Income (UBTI), and that employer would be liable.  The IRS released Notice 2018-99 to provide interim guidance on how to determine the amount of nondeductible parking expenses for QTFs, which, in turn, increases UBTI for Tax Exempt Organizations.

If a Tax Exempt employer pays a third party for employee parking, the amount that is paid, up to the §274(a)(2) monthly limitation, which for 2018 was $260, would be added to UBTI. Any amount in excess of the monthly limitation is treated as compensation to the employee and not an increase to UBTI.

If a Tax Exempt employer owns or leases a parking facility for employee use, Notice 2018-99 provides that the QTF portion that represents UBTI may be calculated using any reasonable method.  The guidance clarifies that the “total parking expenses include, but are not limited to, repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent or lease payments or a portion of a rent or lease payment (if not broken out separately).”

Employers are provided three steps to assist in determining the increase in UBTI as a result of the disqualified expense:

  1. Calculate the disallowance for reserved employee spots
  2. Determine the primary use of the remaining spots
  3. Calculate the allowance for reserved non-employee spots

While there are some rules that go into each of these, Notice 2018-99 makes one thing absolutely clear the total parking expenses attributable to reserved employee spots is UBTI. Additionally, it notes that parking may be reserved for employees by a variety of methods that include, but are not limited to, specific signage, separate facilities, or a facility segregated by a barrier.

It is important to note, however, that employers that have reserved employee spots have until March 31, 2019 to retroactively decrease or eliminate reserved employee spots to January 1, 2018, thus reducing or eliminating the UBTI.

If your organization has onsite parking available to your employees, it is essential that you take a look at Notice 2018-99 to ensure that you will not be surprised by a tax bill when it comes time to file your Form 990. Please contact Jen Solot, Tax Director in BBD’s Not-For-Profit Group, for additional guidance.