IRS Issues Interim Guidance on Parking Expenses for Not-for-Profit Organizations

When the Tax Cuts and Jobs Act (TCJA) made qualified transportation fringe benefits (QTFs) nondeductible, it changed how parking expenses are treated. Recently, the IRS released interim guidance (Notice 2018-99) on how not-for-profit organizations can determine the amount of these expenses that must be treated as an increase in unrelated business taxable income (UBTI) as of Jan. 1, 2018.

Qualified parking is defined in the Internal Revenue Code as parking provided to an employee either a) on or near the business premises of the employer, or b) on or near a location from which the employee commutes to work.

The guidance discusses how to calculate the UBTI in two different situations: paying a third-party for employee parking spots and owning or leasing the parking facility (or a portion of it). The IRS notice defines parking facilities as “indoor and outdoor garages and other structures, as well as parking lots and other areas, where employees may park on or near the business premises of the employer or on or near a location from which the employee commutes to work.”

The first situation is fairly straightforward. If an organization pays a fee to a third party for its employees’ parking spots, then that amount is how much UBTI it has.

If an organization falls into the second category (owning or leasing a parking facility), it is permitted to use any reasonable method for calculating UBTI. However, the IRS has presented a four-step calculation, which involves an analysis of how the parking area is used and then an allocation of expenses.

According to the IRS, total parking expenses include, but are not limited to, repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, rent or lease payments, or a portion of a rent or lease payment. It is important to note that depreciation on a parking facility is an allowance for exhaustion, wear, and tear – not a parking expense.

While this interim guidance still leaves many questions unanswered, the IRS and Treasury Department stated that they do intend to publish regulations and are seeking public input through Feb. 22, 2019.