The Nonprofit Parking Tax Has Been Repealed Retroactively
As part of a large spending package to avoid a government shutdown, Congress passed legislation repealing the infamous “Nonprofit Parking Tax” – an income tax on the cost of parking provided by nonprofit organizations to their employees performing exempt charitable, religious, and educational activities. The repeal of the Nonprofit Parking Tax is retroactive – the legislation literally states that the effective date of repeal is as if the tax was never in the original law. The bill was signed by President Trump on December 20, 2019.
“It is about time that this ill-advised and absurd tax on America’s nonprofits found its way to the dust bin of history,” said Mike Batts, managing partner of Batts Morrison Wales & Lee. “We said this was a bad idea from the beginning, and it didn’t get better with age. What is saddest about it is the immeasurable amount of money, time, energy, and focus the nonprofit sector had to expend in an attempt to comprehend and apply this bad law,” added Batts. “I hope future Congresses will have more respect for the nonprofit community and all that it does to meet the needs of people throughout the world.”
Obtaining Your Refund
With the recent retroactive repeal of the Nonprofit Parking Tax, we were hoping that the IRS would develop and apply a streamlined approach for nonprofit organizations to obtain refunds.
Unfortunately, that’s not the approach the IRS is taking. Instead, the IRS recently published information on its website stating that in order to obtain a refund, an organization must file an amended Form 990-T for the applicable year(s). The key sentence in the IRS guidance on its website reads:
If you wish to claim a refund or credit of the UBIT reported on your Form 990-T for 2017 or 2018 under Section 512(a)(7), you may do so by filing an amended Form 990-T as described in the form’s instructions…
The guidance proceeds to provide detailed instructions for preparing an amended return.
Some members of Congress had asked the IRS to expedite the refund process. And while Congressional spokespeople have crowed in the media that the newly published IRS guidance is a direct response to their efforts, there is nothing expeditious about the requirement to amend a tax return to obtain a refund. Amending a return to obtain a refund is a longstanding, standard requirement under federal tax law.
Sadly, in many cases, the cost to prepare and file an amended return (whether done by an organization’s staff or its external accountants) will equal or exceed the amount of the tax previously paid…which will cause many organizations to simply disregard the availability of a refund.
BMWL was hoping that the IRS would develop a streamlined approach to providing refunds automatically to organizations that had paid the tax…particularly where the Nonprofit Parking Tax was the only taxable item reported on a return. At least for now, that does not appear to be the IRS’s plan.
For BMWL client organizations who wish to pursue a refund of the Nonprofit Parking Tax paid, we stand ready to assist, and will do so as efficiently as possible.
The information provided below is for historical reference only, and is not currently applicable.
What is the Nonprofit Parking Tax?
As part of the big tax reform law passed by Congress and signed into law by President Trump in late 2017 (the Tax Cuts and Jobs Act), provisions were added that relate to certain fringe benefits provided by tax-exempt employers to their employees. Those provisions became effective January 1, 2018.
One provision, new Section 512(a)(7) of the Internal Revenue Code, says that tax-exempt employers (churches, charities, etc.) must treat as unrelated business taxable income the cost of providing parking to their employees, subject to IRS guidance.
What that means in plain language is that Congress created a federal income tax on the cost of employee parking provided by churches, charities, and other nonprofits.
Please note that the links to other resources such as the original BMWL Special Alert and the BMWL Flowchart Tool have been deactivated in light of the repeal.