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Repealed at Last: Unrelated Business Income Tax on Qualified Transportation Fringe Benefits

On December 17, 2019, details of the Taxpayer Certainty and Disaster Tax Relief Act of 2019  were released. Included in this tax provision is the repeal of the highly controversial tax on non-profit organizations related to certain fringe benefit expenses.

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On December 17, 2019, details of the Taxpayer Certainty and Disaster Tax Relief Act of 2019  were released. Included in this tax provision is the repeal of the highly controversial tax on non-profit organizations related to certain fringe benefit expenses.

On December 17, 2019, details of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 were released. Included in this tax provision is the repeal of the highly controversial tax on non-profit organizations related to certain fringe benefit expenses. Originally created by the Tax Cuts and Jobs Act of 2017, a paragraph had been added to Internal Revenue Code Section 512(a) – Unrelated business taxable income, which caused “any qualified transportation fringe (as defined in Section 132(f))” to be recognized by non-profit organizations as taxable income.

Many non-profit organizations found themselves owing taxes and dealing with the administrative burden of determining the amount of taxable income to be recognized. That this tax was for operating necessities like having an employee parking area, or for providing transit passes to their employees, only added to the non-profit community’s dissatisfaction with the new law. Many, including the National Council of Nonprofits, reached out to their lawmakers requesting the repeal of this new “parking tax.” The Taxpayer Certainty and Disaster Tax Relief Act of 2019 rectified this by repealing this paragraph of the Internal Revenue Code.

This welcomed provision was signed into law by President Trump on Friday, December 20, 2019 as part of H.R. 1865, the “Further Consolidated Appropriations Act, 2020”, in Title III, Section 302 of Division Q – Revenue Provisions (which can be viewed by clicking here).

Section 302 of the provision amends Internal Revenue Code Section 512(a) by removing paragraph (7), which was added by the Tax Cuts and Jobs Act of 2017. This amendment is effective for expenses incurred after December 31, 2017, effectively reversing the entire practice of creating taxable income to non-profit organizations on their qualified transportation and parking fringe benefits.

Taxpayers usually make tax refund claims on amended tax returns. It will be interesting to see if the Internal Revenue Service publishes any guidance on this. Stay tuned!

For questions or additional information please contact Chris Granucci by clicking here or contact Laura Kenney by clicking here.

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