On December 20, 2019, the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Act) repealed Internal Revenue Code Section 512(a)(7). Implemented as a part of the Tax Cuts and Jobs Act of 2017, the code section had imposed a tax on transportation and parking benefits provided to employees by tax-exempt organizations. In short, tax-exempt organizations were required to pay unrelated business income tax (UBIT) at a rate of 21% on providing pre-tax or free transportation and parking benefits to their employees beginning January 1, 2018.
Many agree that this tax was burdensome to tax-exempt organizations not only because of the UBIT payments, but also because of the amount of time it required from an administrative perspective to calculate the tax and prepare a return that organizations may not have previously had to file. The Act repealed this tax retroactively. Tax-exempt organizations now are awaiting guidance from the Internal Revenue Service on how to claim their refunds.
On January 8, 2020, Ways and Means Committee Chairman Richard E. Neal (D-MA) released a statement, calling for the IRS to establish an expedited process for tax-exempt organizations to obtain refunds of UBIT paid on transportation and parking benefits provided to their employees. Additionally, Mr. Neal requested that the IRS promptly issue guidance on the appropriate steps tax-exempt organizations should take to claim their refunds.
It’s hoped the guidance will also address credits, net operating losses, etc., that may have been utilized to offset unrelated business income from providing parking benefits.
Schneider Downs is monitoring the next steps that tax-exempt organizations will need to take to receive their refunds and will provide updates as soon as they become available.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.