CPA, CGMA, Partner - Not-for-Profit & Education Industry Leader
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Potential Modifications to the UBIT – Unrelated Business Income Tax
Due to a provision in a pending tax bill that would repeal Internal Revenue Code Section 512(a)(7), some non-profits may soon be heaving a collective sigh of relief with respect to at least one population of tax exempt personnel: those receiving employer provided parking benefits.
Recently, House Ways and Means Committee Chairman Kevin Brady released the text of a nearly 300-page tax bill, that, if enacted into law, would modify the 2017 tax reform act (Act). While this bill includes purely technical corrections to the Act and provisions for handling expired and expiring tax provisions (extenders), it also includes tax policy changes. Some of those changes may benefit tax exempt organizations.
Specifically, under the 2017 Act, there was an increase of unrelated business taxable income (UBTI) for many exempt organizations. One increase was for qualified parking, (i.e., parking provided pursuant to a compensation agreement by an employer to an employee). Under the Act, such parking is considered a “fringe benefit”. Therefore, under section 512(a)(7), currently in effect, there is now a 21 percent income tax on the value of this fringe benefit which is a tax on the employer. However, under the proposed bill now before Congress, this rule would be repealed for those tax-exempt employers that offer this parking benefit.
If passed, this, and other proposed changes included in the bill would also favorably affect non-profits. For example, the bill also proposes an extension of electronic filing capabilities to the 990-T return, which currently needs to be paper filed.
While we wait to see if some version of these proposals will pass into law, there are still questions surrounding the qualified transportation benefit provisions under the 2017 Act that organizations continue to struggle with. We therefore encourage you to reach out to your trusted CohnReznick tax advisor for help in understanding and complying with the rules.
For more information, please contact Lori Rothe Yokobosky, CPA, Senior Manager, Tel: 973-403-6940, LoriRothe.Yokobosky@CohnReznick.com.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.