On December 10, 2018, the Internal Revenue Service (IRS) released interim guidance on the taxation of qualified transportation fringe benefits in the form of Notice 2018-99. In the Notice, the IRS stated, "Using the value of employee parking to determine expenses allocable to employee parking in a parking facility owned or leased by the taxpayer is not a reasonable method because §274(a)(4) disallows a deduction for the expense of providing a QTF [qualified transportation fringe], regardless of its value". On May 30, 2019, Deena Devereux, IRS Office of Associate Chief Counsel indicated that the IRS may reconsider allowing value as a reasonable method in determining parking expenses.
Devereux also mentioned that the IRS is still determining possible ways to calculate the tax. "We're looking at a bunch of ideas and a bunch of simple safe harbors that people have suggested. Like for leases, just looking at 5 or 10 percent of the lease payment, and that's the parking lot [expense]." Currently, no guidance has been released on allocating the cost of a lease payment to parking spots, but even if an organization's lease agreement does not apportion the cost of the parking spots provided to employees, organizations are still required to assign a value using a reasonable method. Notice 2018-99 states, "A method that fails to allocate expenses to reserved employee spots cannot be a reasonable method." Without providing a reasonable method as guidance for breaking out parking spots included in a lease, many organizations are struggling to calculate the value of their spots. The positive side is that Notice 2018-99 states, "The §274(a)(4) disallowance may be calculated using any reasonable method." As long as an organization has evidence that their method is reasonable, and it is well documented, the burden of proof is on the IRS to prove it unreasonable. The key is that a value must be assigned to the spots or the IRS will assign one for the organization.
Due to the huge impact this tax has had on exempt organizations, there is bipartisan support in Washington D.C. to repeal this tax. Practitioners and organizations hope this troublesome tax is repealed sooner rather than later and that there is no need for additional guidance.
For more information or questions regarding the taxation of qualified transportation fringe benefits for exempt organizations, please contact Schneider Downs.
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