IRS issues guidance aimed at limiting impact of tax on nonprofits' parking expenses

The Treasury Department and IRS on Monday released guidance that officials said is designed to minimize the impact of a tax on nonprofits’ parking-benefit expenses that was created by the tax law President TrumpDonald John TrumpTrump directed Cohen to lie to Congress about plans to build Trump Tower in Moscow during 2016 campaign: report DC train system losing 0k per day during government shutdown Senate Republicans eye rules change to speed Trump nominees MORE signed last year.

“Treasury is sensitive to the concerns of the tax exempt community, and hopes this guidance can significantly limit the impact on non-profit groups,” Treasury Secretary Steven MnuchinSteven Terner MnuchinMnuchin refuses to testify at hearing on shutdown impacts Trump cancels delegation's trip to Davos amid shutdown On The Money: Shutdown Day 27 | Trump fires back at Pelosi by canceling her foreign travel | Dems blast 'petty' move | Trump also cancels delegation to Davos | House votes to disapprove of Trump lifting Russia sanction MORE said in a news release. “Treasury is offering tax exempt organizations a roadmap for navigating their responsibilities. The guidance issued today aims to provide flexibility while minimizing the burden on non-profit groups that provide employee parking.”

The 2017 tax law eliminates businesses’ ability to deduct the expenses they incur for providing their employees with fringe benefits such as parking. It also subjects nonprofits to an unrelated business income tax of 21 percent for the transportation benefits they provide to their employees.

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The tax on nonprofits’ transportation benefit expenses received heavy criticism from charities and religious organizations, who argue that the tax would cause them to divert resources that they would otherwise use to further their missions.

The tax for nonprofits also has garnered bipartisan criticism in Congress. House Ways and Means Committee Chairman Kevin BradyKevin Patrick BradyTexas governor, top lawmakers tell Trump not to use hurricane relief funds to build border wall Trump on declaring national emergency: 'Not going to do it so fast' Dems look to chip away at Trump tax reform law MORE (R-Texas) has proposed repealing it as part of a year-end tax package, while Sens. James LankfordJames Paul LankfordWhat the government shutdown means for our nation’s cybersecurity GOP senators challenge Trump on shutdown strategy GOP senator: No border security plan without a wall MORE (R-Okla.) and Chris CoonsChristopher (Chris) Andrew CoonsOvernight Defense: Trump unveils new missile defense plan | Dems express alarm | Shutdown hits Day 27 | Trump cancels Pelosi foreign trip | Senators offer bill to prevent NATO withdrawal McConnell blocks bill to reopen most of government Bipartisan senators reintroduce bill to prevent Trump from withdrawing from NATO MORE (D-Del.) had urged Treasury to delay implementation of the tax.

A senior Treasury official said that the tax is part of the law and the department didn’t believe it could ignore the law, but that Treasury tried to come up with methodology for calculating the tax that would limit its impact.

The new notice from the IRS provides guidance about how businesses can compute the amount of parking expenses they can’t deduct, and how nonprofits can compute the amount of expenses subject to unrelated business income tax.

The guidance provides that in cases where a business or nonprofit owns or leases facilities where its employees park, the entity can determine the amount using “any reasonable method” or by following a method outlined in the document.

Nonprofits might be able to reduce the amount of tax they have to pay by reducing or eliminating the number of parking spaces they reserve for employees by March 31, the IRS said.

Additionally, the IRS said that it is providing tax-penalty relief for tax-exempt groups that offer fringe benefits and that did not have to file a business income tax return last year.

David L. Thompson, Vice President of Public Policy of the National Council of Nonprofits, was critical of the IRS’s notice and said that it demonstrates that the tax on nonprofits’ expenses for transportation benefits needs to be repealed.

“In a law intended to create tax simplification, this Notice explains how to apply the section by requiring nonprofits of all sizes to follow a four-step calculus that will vary for each organization, and can vary from month to month,” he said.

“The Notice provides minimal instruction, relieves some organizations of penalties that result from the IRS’s own delay, and completely ignores the imposition of the new taxes on transit benefits, benefits that are mandated for some employers in various cities. Repeal of the section is the only reasonable response.”