Update: Churches wanting to claim a refund for unrelated business income tax (UBIT) due to the recently repealed “parking lot tax” must file an amended Form 990-T for the applicable year or years. Go to the IRS website for specific guidance.
A controversial provision included with the Tax Cuts and Jobs Act of 2017 (TCJA) was officially repealed December 20, 2019, after President Trump signed into law two spending packages—worth a combined $1.4 trillion—that Congress adopted earlier in the week.
The original provision was an unrelated business income tax on qualified transportation fringe benefits, including employer-provided parking, provided by nonprofits and churches. Widespread criticism from across the nonprofit sector erupted almost immediately after the TCJA was passed in December of 2017. Last week’s packages contained language undoing the provision.
The repeal operates retroactively “as if the tax was never in the original law,” noted national CPA firm Batts Morrison Wales & Lee, which serves nonprofits and churches across the country. “Organizations that have filed returns paying the tax may amend those returns to obtain refunds. We expect that the [Internal Revenue Service] will issue guidance on the refund process. We are hopeful that the IRS might automatically generate refunds for organizations that filed income tax returns solely to pay the Nonprofit Parking Tax, without the need to file amended returns.”
In 2018, the IRS issued guidance regarding how the tax was supposed to work, but at least a portion still would have been based on a four-step analysis derived from the agency’s explanation.
Church Law & Tax will continue to monitor this tax development and others affecting churches on ChurchLawAndTax.com. For a comprehensive view of the latest tax changes, order the annual Church & Clergy Tax Guide.