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 TrumpBaldwin calls Trump criticism following 'Rust' shooting 'surreal' Haley hits the stump in South Carolina Mary Trump files to dismiss Trump's lawsuit over NYT tax story 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 MnuchinThe Hill's Morning Report - Presented by Facebook - Biden to tackle omicron risks with new travel rules Mnuchin and McConnell discuss debt limit during brief meeting Major Russian hacking group linked to ransomware attack on Sinclair: report 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.
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 BradyEconomic growth rate slows to 2 percent as delta derails recovery Democratic retirements could make a tough midterm year even worse Yellen confident of minimum global corporate tax passage in Congress MORE (R-Texas) has proposed repealing it as part of a year-end tax package, while Sens. James LankfordJames Paul LankfordRubio blocks quick votes on stalemated defense bill Constant threats to government funding fail the American public GOP Senate candidate says Fauci is 'mass murderer,' should be jailed rather than 'hero' Rittenhouse MORE (R-Okla.) and Chris CoonsChris Andrew CoonsHouse passes bill to expedite financial disclosures from judges Overnight Energy & Environment — Presented by ExxonMobil — Dems seek to preserve climate provisions Democrats wrangle to keep climate priorities in spending bill 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.”