by Linda Curro

The government funding legislation passed by Congress in December 2019 includes the repeal of the Internal Revenue Code § 512(a)(7), commonly referred to as the “Parking Tax.” The legislation was signed by the President on December 20th, 2019.

The original provision, enacted as part of the 2017 Tax Cuts and Jobs Acts, required tax-exempt organizations to include in unrelated business income the amounts they pay or incur on qualified transportation fringe benefits.  The imputed taxable income from the provision resulted in many organizations incurring unrelated business income tax (UBIT) liabilities for the first time. The repeal of the Nonprofit Parking Tax is retroactive – the legislation literally states that the effective date of repeal is as if the tax was never in the original law.

Given that the repeal is retroactive, organizations that have filed returns paying the tax may amend those returns to obtain a refund. We expect that the IRS will issue guidance on the refund process or might automatically generate refunds for organizations that filed income tax returns solely to pay the Nonprofit Parking Tax, without the need to file amended returns.

In addition, the legislation also changes the Section 4940 private foundation excise tax on net investment income to a flat 1.39%, thus eliminating the current two-tier tax rates of either 2% or 1%.  The single rate will be effective for tax years beginning after the legislation’s date of enactment.

We will monitor the IRS’s published guidance in this area and keep you informed.