Under the Tax Cuts and Jobs Act, certain expenditures related to providing employee parking were deemed unrelated business taxable income and resulted in taxable income for nonprofit organizations. This provision was highly unpopular in the tax-exempt sector. It resulted in a tax burden for organizations that typically did not owe income taxes, and an increase in administrative burden, due to complicated and tedious calculations.
After lobbying by various organizations and pleas from constituents, Congress finally passed a resolution that repealed this “parking tax.” The president signed The Taxpayer Certainty and Disaster Tax Relief Act of 2019 into law late on December 20th, 2019. Not only was the parking tax repealed, it was repealed retroactively. Many tax-exempt organizations will be due a refund on any tax paid for employee parking. To receive the refund, organizations will need to amend the previously filed Form 990-Ts where they reported and paid the taxes.
Per IRS instructions, organizations can amend previously filed 990-Ts by reducing the amount of income due to the taxable parking calculation to zero and then calculating what amount of tax would have been due without the taxable parking income. The excess amount of tax previously paid can either be refunded or credited to a future period’s tax return. When amending these returns, you must write “Amended Return – Section 512(a)(7) Repeal” on the top of the first page of 990-T. Amended returns must also include a statement indicating the line items being amended and explain that the reason for the change is due to the repeal of Section 512(a)(7).
Organizations typically have three years to amend, from the date the original return was filed, which gives plenty of time to amend the 990-T returns. The repeal of this tax was a huge win for the nonprofit sector. Tax-exempt organizations can now cease these time-consuming parking calculations and put money back into their organizations by requesting a refund of these previously paid taxes.
Unfortunately, the nondeductible parking expenses and related calculations remain in place for the for-profit sector. Please see my previous blog post Tax Reform: Are Your Parking Expenses Deductible? for a detailed discussion of how the nondeductible parking expenses are to be calculated for taxable entities. And consult with your HORNE tax advisor on how these regulations will affect you.