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

Nonprofit Employers That Provide Transportation & Parking Benefits to Employees May Have New Tax Compliance Issues under Tax Reform Law Effective Now

BMWL Client Organizations Offering Certain Benefits Should Contact Us to Address

The new comprehensive federal tax law passed by Congress in late 2017 and largely effective now contains some provisions of special interest to nonprofit employers that provide certain transportation (commuting) and parking benefits to their employees.

The new rules are technical and complex, and their practical application is subject to change as additional authoritative guidance is issued by the IRS and/or Treasury Department.

Two key aspects of the new law in the arena of transportation and parking benefits provided by nonprofit employers relate to:

  1. Employer-paid qualified transportation (commuting) and parking benefits that are treated as tax-free benefits to employees, whether paid directly by the employer or paid via a compensation reduction agreement with employees; and
  2. Parking provided by nonprofit employers to their employees in connection with their employment (on or off premises).

The new federal tax law includes a provision indicating that nonprofit, tax-exempt organizations that provide certain benefits of the type described in Item #1 above must treat the cost of the benefits provided as unrelated business taxable income to the nonprofit employer. Nonprofit organizations to which this provision applies may be required to file federal corporate income tax returns (Form 990-T) as well as state income tax returns and may owe tax in connection with the activities. (As a reminder, the federal income tax rate for nonprofit corporations under the new tax reform law is a flat 21%.)

Applicability of Item #2 above to nonprofit organizations remains extremely unclear. It is difficult to imagine that the intent of Congress, and the practical application of the law, is to cause every nonprofit organization in America that provides parking to its employees to have taxable income and possibly be required to file federal income tax returns as a result. We are optimistically awaiting clear guidance removing any doubt about the practical implications of this unusual provision in the law.

If you are a BMWL Client and you provide employee benefits of the type described in Item #1 above, please contact our Tax Team soon to discuss the applicability of the new law to your circumstances. Depending on the facts, your organization may have a new tax obligation effective for tax years ending after December 31, 2017.

We will, of course, continue to keep our clients apprised of additional guidance and helpful information about this new and evolving aspect of federal tax law.

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