January 29, 2020

The Repeal of the Despised Parking Tax – A Quick End to a Long Two Years

By Frank Smith, National Leader, Nonprofit Tax

Related Services Tax Advisory Services, Tax & Business

Related Industries Nonprofit & Social Sector, Nonprofit Tax Services

parking garage Tax Advisory Services

As we reported in our Tax Flash dated November 17, 2019, the Tax Extender Bill signed by President Trump included the full and retroactive repeal and the elimination of the tax imposed on qualified transportation benefits, otherwise known as “the parking tax.”

The IRS has now issued guidance for tax-exempt organizations claiming a refund or credit of unrelated business income taxes paid due to the revisions to this law. To claim a refund or credit of the tax originally reported on Form 990-T, the IRS states that organizations should file an amended Form 990-T for the year in which the tax was paid and provides specific guidance depending on the year being amended.

This brings an end to one of the most controversial tax topics that has faced nonprofit organizations in many years. When the Tax Cut and Jobs Act (TCJA) was enacted at the end of 2017, there was a lot of discussion about the potential impact to nonprofit organizations.

As the TCJA was being negotiated and up until its final release, lawmakers were trying to reduce the corporate tax rate as far as possible. One such solution was a provision related to the denial of a deduction for certain qualified transportation benefits paid on behalf of corporate employees. A question was raised as to whether or not it would be fair to deny a deduction to a taxable corporation when a nonprofit next door was not subject to such a restriction. A solution was quickly agreed to…and the parking tax was born.

For the next two years, the entire nonprofit industry struggled to understand this new tax. It was not part of an activity unrelated to the organization, it was not a trade or business, and it wasn’t even income, and yet it was an amount added to the unrelated business income of the nonprofit organization and taxed at the full 21% corporate tax rate.

During the following two years, there were constant discussions at every nonprofit tax conference as well as meetings between nonprofit organizations and their advisers. The entire industry mobilized and reached out to legislators on both sides of the aisle in Congress. However, due to the political divisions in Washington, there was little hope that a repeal would happen any time soon. In meetings just weeks before the tax extender bill was proposed and passed, the IRS and congressional staff were not optimistic anything would change until after the 2020 elections.

This all changed when an early Christmas present seemed to come from nowhere, and the controversial parking tax was retroactively repealed—wiped off the books as if had never been passed. While the cleanup will continue over the next several months as we work with our nonprofit clients to request refunds, the entire nonprofit industry can breathe a deep sigh of relief that one of the most illogical tax laws has been repealed and removed from the tax code.

Contact your Marcum tax advisors to determine if your organization is eligible to receive a refund related to the reversal of this tax.