The IRS issued Notice 2018-99 at the end of December 2018 providing guidance to determine the amount of parking expenses for qualified transportation fringes that are now nondeductible under IRC §274(a)(4). This should impact all business clients that have offices with employee parking or pay/reimburse employees for parking.
So let’s dive a little deeper. While the notice should impact all business owners that have offices with employee parking and/or reimburse employees for parking, there two prominent scenarios with different technical treatments:
- Business owners who pay for or reimburse employees for third-party parking (e.g. parking garages)
- Business owners who have an office either owned or leased that provides employees with parking
This first scenario is the most simple. Any amount paid or reimbursed by the business owner for employee parking is non-deductible unless he or she includes the amount in the employee’s compensation.
The second scenario, however, brings some complex and time-consuming calculations that most business owners may not be aware of. That’s why we’re here to help. There is a need for a complex calculation and allocation of actual expenses attributable to each parking spot, which should be either included in the employee’s compensation or be a non-deductible expense at the entity level.
If you are an exempt organization, the same guidelines for disallowed fringe benefits parking costs apply and are considered taxable unrelated business income (UBI). Exempt organizations that previously did not have a UBI filing requirement may now have one if these expenses exceed the $1,000 filing threshold for a Form 990-T.
It’s important to remember that this guidance applies to parking-related expenses incurred as of January 1, 2018, so this will impact tax filings for fiscal year filers ending in 2018. That means you, exempt organizations!
While this impacts almost every type of business, in the realm of tax reform, with the opportunities and pitfalls that exist, make sure your CPA is taking the time to provide you with the right solutions and reasonable guidance on this matter. If you would like to learn more, please reach out to our tax professionals at firstname.lastname@example.org.