What You Need To Know About The New Tax Law and Its Effects on Your Nonprofit’s Form 990
Tax Cuts and Jobs Act and Its Effect on Unrelated Business Income Tax
- Form 990-T has been redesigned and has added a new Schedule to assist in calculation of Unrelated Business Income Tax (UBIT).
- The form redesign is mainly attributed to the new reporting requirements of showing income and expenses for each unrelated trade or business separately.
- The new Schedule M was created to show these separate trades or businesses income and expenses, which is then translated to the main Form 990-T.
- Qualified Transportation Fringe (QTF) benefits are non-allowable deductions for non-profits and must be added back to UBIT income.
- QTFs are defined by the IRS as:
- Transportation in a company provided commuter highway vehicle between the employee’s residence and place of employment
- Any transit pass
- Qualified parking, this is defined by the IRS as:
- Parking provided to an employee on or near the business premises of the employer on or near a location from which the employee commutes to work. This does not include any parking used for residential purposes.
QTF – Qualified Parking Guidance
Taxpayer Pay Third Party for Parking Spots
- When an employer pays a third party for employee(s)’ parking spot, the total annual cost of the employee(s) parking is disallowed and should be added to UBIT income
Taxpayer Owns or Leases All of Portion of Parking
- Until further IRS notice, any reasonable method in calculating this may be used
- Have until March 31, 2019 to change reserved spots and apply retroactively at January 1, 2018
- Total parking expenses include but are not limited to:
- Repairs & Maintenance
- Property taxes
- Groundskeeping/landscaping (snow, ice, leave, trash removal)
- Parking Lot Attendant
- Rent/Lease Expense
- Depreciation is an allowance for the exhaustion and wear and tear of property and is therefore, not a parking expense
- Using the value of employee parking to allocate expense in an owned or leased parking facility is not a reasonable method because the IRS disallows a deduction for the expense in providing a QTF
Steps to Calculate Disallowed QTF Benefits
- Calculate disallowance for reserved spots in an owned/leased facility
- Identify the number of spots in the facility allocated to employees
- Determine percentage of reserved spots to total spots in facilities
- Multiply the total expense paid for the reserved spots to the percentage of spots to determine QTF
- Determine the primary use of remaining spots
- Primary use means greater than 50 percent of usage of the spots
- If the primary use of the remaining spots is to provide parking for the general public, the remaining total parking expense for the facility are excepted from the disallowance
- Calculate the allowance for reserved non-employee spots (if no non-employee spots, skip to Step 4)
- If the primary use is not to provide parking to the general public, the taxpayer may identify the number of spots in the facility reserved for non-employees
- The number of reserved non-employee spots in the facility, or portion, may be exclusively reserved for non-employees in a variety of methods
- Specific signage or a separate facility or potion segregated by a barrier or limited access
- Determine the percentage of reserved non-employee spots in relation to the remaining spots and multiply that percentage by the taxpayer’s remaining total parking expenses. This calculation is the deduction for remaining total parking expenses that is disallowed.
- Determine remaining use and allocable expenses
- Any excess expenses must be reasonably determined by the employee use of the remaining spots during normal business hours
- The calculated amount applied to employee spots is disallowed and will be added to UBIT income for the purpose of calculating tax expense
Please contact us as soon as you can to discuss the Qualified Transportation Fringe (QTF) benefits and its application to your organization, especially if you are certain that your organization provides these benefits. This update applies to all non-profits and could potentially generate a filing of Form 990-T for your Organization even if you have never had one before.
We are happy to answer and help with any questions you may have, so please feel free to contact us at any time!