The 2017 tax reform reconciliation act, also known as the Tax Cuts and Jobs Act (TCJA), significantly impacted businesses, individuals, and not-for-profit organizations. Effective on January 1, 2018, the TCJA requires not-for-profits to file Form 990-T and pay the Unrelated Business Income Tax (UBIT) for certain fringe benefits, such as transportation and parking.
The IRS has yet to post final regulations clarifying the UBIT that must be paid for transportation benefits provided by not-for-profit entities. For now, organizations should look to the interim guidance provided in Notices 2018-99 and 2018-100, both of which were issued in December 2018.
The lack of further guidance has left many employers confused about the proper method for calculating the cost of these transportation benefits, as well as which expenses should be considered in said calculation.
For larger hospital clients, for example, there are multiple parking facilities for which to account, and it’s often difficult to figure out if more than 50% of all parking spots are used by the public on a typical working day.
Some cities, including New York and San Francisco, have mandated employers provide pretax mass-transit benefits to their employees. This means not-for-profit entities in those cities don’t have the option of changing their transportation benefits instead of paying UBIT on them. Even churches may have to file Form 990-T, even though they aren’t required to file Form 990.
Organizations had until March 31, 2019, to avoid paying UBIT on transportation benefits by eliminating employee-reserved spots.
Recent Legislative Action
This controversial provision is a target for repeal in both the US House of Representatives and Senate, with representatives on both sides of the aisle proposing legislation.
In November 2018, Senators James Lankford (R-OK) and Chris Coons (D-DE) sent a letter to Secretary of the Treasury Steven Mnuchin to express concerns about the challenges faced by tax-exempt organizations.
Representatives Mark Walker (R-NC) and Tom Suozzi (D-NY) introduced a bill on March 5, 2019, to repeal the UBIT on certain employee benefits provided by associations and other tax-exempt organizations.
On May 2, 2019, Senators Ted Cruz (R-TX) and Jeanne Shaheen (D-NH) introduced the bipartisan Preserve Charities and Houses of Worship Act to repeal taxes on not-for-profit fringe benefit offerings.
On June 20, 2019, the House Ways and Means Committee voted 22–19 in favor of House Resolution 3300, The Economic Mobility Act of 2019. Section 401 of this bill would repeal Section 512(a)(7) of the Internal Revenue Code.
No timeline has been set on when the tax bills could see a vote by the full House of Representatives. If this provision is ultimately repealed, not-for-profit organizations can expect to be able to apply for a refund of any UBIT tax previously paid.
We’re Here to Help
To learn more about how this information applies to your organization or help with your planning strategy, contact your Moss Adams professional.