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Relief for Nonprofits: Congress Repeals "Parking Tax"

On December 20, 2019, H.R. 1865, “Further Consolidated Appropriations Act, 2020,” (the Act) was signed into law by President Trump. The Act retroactively amends Internal Revenue Code (IRC) Section 512(a) by striking paragraph (7) which required nonprofit organizations to include expenses paid or accrued related to leased, third-party, or self-owned employee parking facilities, bicycle reimbursements, or commuter transportation as unrelated business income and pay 21 percent unrelated business income tax (UBIT). This long-awaited act repeals the “parking tax,” which was enacted with the Tax Cuts and Jobs Act (TCJA) in December 2017. It has been a priority of nonprofit advocates for two years to remove this burdensome requirement.

The Act retroactively repealed IRC Section 512(a)(7). To the relief of nonprofit employers, it eliminates the necessity to file an IRS Form 990-T and pay the “parking tax”. This allows any nonprofit, or organization required to pay the transportation benefit tax, that has already paid or accrued the tax after December 31, 2017, to receive a refund. Further guidance for refund procedures is expected, but until then, nonprofits can file an amended Form 990-T to claim their refund.

The Act has also modified the private foundation excise tax rate on investment income. Prior to the Act, the excise tax rate was 2 percent with a reduction to 1 percent if certain distribution requirements were met. The excise tax rate is now a flat 1.39 percent with no possibility of a reduced tax rate. The amendment applies to taxable years beginning after December 20, 2019, the enactment of the Act.

The IRS recently issued guidelines in early January on how taxpayers should claim refunds on amended 2017 and 2018 IRS Forms 990-T from the repeal of 512(a)(7) for transportation fringe benefit amounts. The time limits for filing these claims are the later of three years from the original Form 990-T filing or two years after the time the tax was paid.

For assistance preparing an amended IRS Form 990-T, to apply for your organization's refund or learn more about these changes, contact a Rehmann advisor to assist, today.

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