Batts Morrison Wales & Lee - News & Resources - Nonprofit Special Alert

BMWL Works to Stop New Tax on Nonprofits for Simply Providing Parking to Their Employees

June 11, 2018

Batts Morrison Wales & Lee announced today efforts to stop the effects of a new law that imposes a tax on nonprofit employers for simply providing parking to their employees.  A little-known provision of the new tax reform law would do just that.

“The idea that tax-exempt employers should be taxed on parking they provide to employees is outrageous and must be stopped,” stated Mike Batts, managing partner of BMWL and the leader of the firm’s efforts to stop the tax. “There is no sound policy basis for taxing charitable, religious, and educational organizations on parking they provide to employees to carry out their important work.  This terrible idea of a new tax must be stopped, either by legislation or regulation,” added Batts.

The Tax Cuts and Jobs Act contains a troubling provision that applies federal income tax to parking benefits provided by tax-exempt organizations to their employees.

Newly added Section 512(a)(7) of the Internal Revenue Code states, “Unrelated business taxable income of an organization shall be increased by any amount for which a deduction is not allowable…by reason of section 274 and which is paid or incurred by such organization for any…parking facility used in connection with qualified parking…The Secretary shall issue such…guidance as may be necessary…including regulations or other guidance providing for the appropriate allocation of depreciation and other costs with respect to facilities used for parking…”

Tax practitioners who have evaluated Section 512(a)(7) generally believe that the result of this new provision is that tax-exempt organizations that provide parking to their employees will be subject to unrelated business income tax on the cost of the parking provided.  A nonprofit organization that simply allows its employees to park in a parking lot or garage that is part of the organization’s facilities will be subject to a tax on the cost of the parking provided.

How the parking costs must be measured remains to be addressed in the “regulations or other guidance” to be issued by the IRS.  To apply this new requirement, nonprofit employers and their accountants must have guidance addressing exceedingly complex questions of allocations of basis, depreciation, and rent payments among different structures and between employee and non-employee users.

Because of this new tax, many tax-exempt employers, including churches, hospitals, charities, and schools will be required to file federal Form 990-T, and in many cases, state corporate income tax returns, every year regardless of whether they actually engage in any unrelated business activity.  

BMWL’s effort to put an end to this provision in the law is just beginning.  We will provide further information in the days ahead as to how nonprofit leaders can support this effort.

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