Guidance on Nondeductible Parking Expenses and UBTI

The IRS recently issued new guidance in order to help taxpayers determine which part of parking expenses are no longer tax deductible. Additionally, the IRS offered guidance on how tax-exempt organizations determine how these nondeductible parking expenses create or increase unrelated business taxable income (UBTI).

The guidance comes late in the year so the IRS is allowing taxpayers that own or lease parking facilities to determine their amount of nondeductible expenses, so long as it is a reasonably adopted method in place. Taxpayers without a reasonable method may rely on the newly issued guidance by the IRS until a new regulation is in place.

A large part of the guidance is the special rule, which enables employers to retroactively reduce the amount of their nondeductible parking expenses per the IRS. The new rule will allow employers to change their parking arrangements and reduce or eliminate parking spots reserved for employees, but it must be done by March 31, 2019. The guidance allows for many churches, schools, hospitals and other tax-exempt organizations to reduce their UBTI. This new special rule may allow some businesses to avoid filing the Form 990-T.

Changes in parking arrangements will be retroactively applied as of January 1, 2018, so keep that in mind. If you have questions about deductions or changes in the tax code, reach out to us at the Center for Financial, Legal & Tax Planning, Inc. We have a staff of professionals that are prepared to answer your questions.