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On December 10, 2018, the IRS issued interim guidance on the calculation of nondeductible qualified transportation fringes (“QTFs”) by way of Notices 2018-99 and 2018-100.

 The Tax Cuts and Jobs Act of 2017 disallows tax deductions of qualified transportation fringe benefits provided to employees starting January 1, 2018.  This includes benefits such as mass transportation tickets and parking at the employer’s facility.  Conversely, tax exempt organizations must report any such nondeductible QTF benefits provided to employees as unrelated business income.

 Notice 2018-99 discusses the manner in which such QTFs should be analyzed to derive the amount of unrelated business income.  Parking paid to a third party by an organization for employee parking spots is straightforward and based on the amount paid to the third party.  The calculation for employee parking benefits provided by an organization that owns its own parking facility is a bit more complicated.  Until further guidance is provided, these organizations can use any reasonable method.  For now, Notice 2018-99 provides a safe harbor for this calculation based on a percentage of total parking expenses incurred by the organization for maintaining the facility (excluding depreciation).  The percentage depends on a few factors, including the number of parking spots reserved for employees.

 Unfortunately, this interim guidance does not go as far as discussing whether any expenses can be used to offset the unrelated business income reported from provision of QTF.  However, the Notice does allow taxpayers and organizations until March 31, 2019 to make changes to their reserved parking arrangements and have it be recognized retroactively to January 1, 2018.

 Notice 2018-100 provides relief from penalties for underpayment of estimated taxes if the tax-exempt organization is now filing a Form 990-T solely to report unrelated business income due to QTFs.

 Nanaz Benyamini, Partner

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