Due to Feedback, IRS is Brainstorming Other Ways to Calculate the Tax on Parking

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  Practitioners and organizations hope this troublesome tax is repealed sooner rather than later and that there is no need for additional guidance.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.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2020 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on

OMB Issues Final 2020 Compliance Supplement
Distance Education Program Compliance Requirements and COVID-19
FMCSA Proposes Promising Pilot Program
Notices for Nonpayment of Income Taxes
Pennsylvania Commonwealth Court Decides Market-Based Sourcing for Services Prior to Legislative Change in 2014

Register to receive our weekly newsletter with our most recent columns and insights.

Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us

contact us

Map of Pittsburgh Office

One PPG Place, Suite 1700
Pittsburgh, PA 15222

p:412.261.3644     f:412.261.4876

Map of Columbus Office

65 East State Street, Suite 2000
Columbus, OH 43215

p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102