Changes in Deductibility of Employer-Paid Parking Expenses

As a part of 2018 tax reform, the IRS has changed the deductibility of employer-paid parking expenses for employees. In addition, the IRS has also stated these same parking expenses that would be non-deducible for a for-profit entity will now increase unrelated business income if paid by a not-for-profit entity. On Tuesday, December 11, the IRS released additional guidance on rules and how to calculate these amounts. Up until then, the IRS has been very vague about what circumstances this could apply. We are currently working through the complex steps and scenarios. We will provide additional guidance in the coming weeks to help calculate the amount, if applicable. But here is what we know now:

• If the entity has reserved employee parking spaces, the organization will have unrelated business income (UBI). The IRS is allowing a grace period to take down signage before March 31, 2019 to avoided the automatic application of the tax, retroactive to January 1, 2018.
• Remaining parking spaces of the organization will need to be categorized and be subject to a four-part calculation to determine what percentage is available for the general public to know if associated expenses will be UBI.

As clients of MHCS, we want you to be aware this could potentially affect our not-for-profit entities. Some entities could be paying unrelated business income tax (UBIT) for the first time while others will be seeing an increase in UBIT. As always, UBI in total less than $1,000 does not need to be reported.

If you have any questions on the change in deductibility of employer-paid parking expenses, please reach out to us at 515-288-3279.