Congress Repeals Tax on Nonprofit Parking and Transportation Benefits

Legislation (H.R. 1865) was passed late last week repealing the tax assessed on expenses incurred by tax-exempt employers for providing parking, commuter, and other transportation benefits to their employees. The provision, which eliminates Section 512(a)(7) of the Internal Revenue Code (IRC), was passed as part of a larger appropriations bill to fund the federal government through fiscal year 2020. The repeal applies retroactively, so it will be as if the tax liability never existed. Organizations that previously reported and paid the tax must await further guidance on the process by which they can apply for a tax refund.

The repeal is a victory for nonprofit tax-exempt organizations, which have long argued that the tax was both illogical and inequitable. As discussed in CAPLAW’s March 2019 FAQ, IRC § 512(a)(7) required tax-exempt employers, including nonprofit Community Action Agencies (CAAs), to count their expenses of providing parking to employees as unrelated business taxable income and pay taxes on those expenses, even if CAAs provide the parking at no cost to employees and the general public. The tax was also assessed on the cost of other transportation fringe benefits such as commuter passes, regardless of whether the employer subsidized the benefit or the employee paid the full cost of the benefit through a compensation reduction agreement.

We encourage CAAs that have questions about the repeal to contact CAPLAW for further information.

This News Flash is part of the Community Services Block Grant (CSBG) Legal Training and Technical Assistance (T/TA) Center. It was created by Community Action Program Legal Services, Inc. (CAPLAW) in the performance of the U.S. Department of Health and Human Services, Administration for Children and Families, Office of Community Services Cooperative Agreement – Grant Award Number 90ET0467-03. Any opinion, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the U.S. Department of Health and Human Services, Administration for Children and Families.

The contents of this news flash are intended to convey general information only and do not constitute legal advice. Any communication through this publication or through CAPLAW’s website does not constitute or create an attorney-client relationship. If you need legal advice, please contact CAPLAW or another attorney directly.