Editor’s note: In December 2018, the IRS issued interim guidance on this topic until a final ruling is clarified. We published that story here: “IRS Issues Interim Guidance, Special Rule Regarding 'Parking Lot Tax'.”
A new definition of unrelated business income created through the Tax Cuts and Jobs Act of 2017 has the nonprofit community, including the church community, buzzing with a mixture of rumors and facts regarding potential new tax liabilities and filing responsibilities. While there are differing opinions on the matter, we believe many churches are not affected by this provision when it comes to the parking they provide to employees. Let’s take a closer look at why we reached this conclusion.
Background on the New Tax
Many great stories start with “once upon a time,” but tax law stories most often start with “let’s cut taxes” and a Congress determined to cut both individual and corporate tax rates. However, writing the story of the Tax Cuts and Jobs Act of 2017 with that desired outcome in mind meant that Congress still needed to make up for the revenue shortfall created by the tax rate cuts. To make it work, Congress found the needed revenue by including a tax on long-standing fringe benefits for certain work-related transportation costs.
Congress had two options with respect to how this tax would work. It either could place a tax on the recipient/employee’s income from the benefit or it could place a tax on the provider/employer’s deduction for the benefit. Congress chose to tax the provider/employer by disallowing the tax deductions for-profit employers could claim related to any transportation fringe benefits provided to employees.