IRS Provides Interim Guidance on Qualified Parking
By Joseph R. Connolly, Tax Supervisor
Under Internal Revenue Code (IRC) Section 274(a)(4), no deduction is allowed for an expense of a qualified transportation fringe benefit (QTFB) provided to an employee of a taxpayer. IRC Section 512(a)(7) provides that a tax-exempt organization’s unrelated business taxable income (UBTI) is increased by the amount of the QTFB expense that would be non-deductible under IRC Section 274.
Qualified transportation fringe benefits include:
- transportation in commuter highway vehicles,
- transit passes, and
- qualified parking.
The IRS recently issued Notice 2018-99 which provides interim guidance for taxpayers to determine the amount of nondeductible qualified parking expenses included in the QTFB.
Qualified Parking Defined
Qualified parking is defined in IRC Section 132(f)(5)(C) as parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work. Effective after December 31, 2017 and as part of the Tax Cuts and Jobs Act (TCJA), the costs associated with providing parking for employees may now be taxable to nonprofit organizations.
Calculating Taxable Parking Costs
To calculate the cost of parking that is taxable, an organization must follow the process outlined below and also summarized in this decision chart.
Allocable Parking Expenses
The allocable expenses associated with parking are determined by the cost of the parking spot or facility, not the value of the lot or facility. Costs associated with these spots include: repairs and maintenance, snow and trash removal, parking lot attendant salary, landscape cost, security cost and rent or lease payments. Cost does not include any depreciation on a parking structure owned by an organization.
Net Taxable
Once an organization determines the cost of employee parking and that the primary use of the spots or facility is for employees, that amount is now taxable to the organization. If the benefit provided to an employee exceeds $260 per month, the amount in excess of $260 (increased to $265 in 2019) should be treated as taxable compensation to the employee.
Contact Us
If you have questions regarding how these rules will apply to your organization or how to report unrelated business income, contact Garrett M. Higgins, CPA, Partner at ghiggins@pkfod.com or a member of your tax-exempt client service team at PKF O’Connor Davies.