Attention nonprofits…good news! The Taxpayer Certainty and Disaster Relief Act of 2019 (the “Disaster Act”) repeals the requirement for tax-exempt organizations to pay unrelated business income tax (UBIT) on the value of transportation and parking benefits for employees. We explore the new ruling below.

Some helpful background

Check out our blog, Does my Nonprofit Have to Pay Tax on Employee Parking? Essentially, the TCJA amended Section 512(a)(7) to provide that expenses paid or incurred by employers after December 31, 2017 to provide employee transportation and parking benefits are (generally) no longer deductible.

If your nonprofit organization provided transportation benefits to its employees, it would need to pay unrelated business income tax (UBIT) on the value of the non-deductible benefit and report it on Form 990-T, Exempt Organization Business Income Tax Return.

Disaster Act Changes

Nonprofit organizations and church leaders have been working to eliminate this tax ever since the TCJA was signed into law in December 2017. Organizations have reported that in order to satisfy their tax obligations they have had to divert their already limited resources away from their missions.

The Taxpayer Certainty and Disaster Tax Relief Act, signed by the president on December 20, 2019, repeals section 512(a)(7) from its original effective date. Any organization that paid tax on transportation fringe benefits paid or incurred after December 31, 2017 will be able to claim a refund of the taxes paid. The IRS has not issued guidance on how to claim a refund of taxes paid but we will provide an update once guidance becomes available.

This is great news for nonprofits as many were not equipped to handle the additional administrative burdens or compliance costs of this tax.

Need assistance assessing your refund opportunity? Contact us.