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Nonprofits seek repeal of UBIT fringe benefits tax

Written on Mar 19, 2019

A controversial provision in the 2017 tax reform law that taxes certain fringe benefits offered by nonprofit employers is now a target for repeal in both houses of Congress.

Reps. Mark Walker (R-NC) and Tom Suozzi (D-NY) introduced a bill March 5 to repeal the unrelated business income tax (UBIT) on certain employee benefits provided by associations and other tax-exempt organizations.

The bill is a companion to legislation introduced last week by Sens. James Lankford (R-OK) and Chris Coons (D-DE).

The tax on nonprofit fringe benefits, like parking and mass transit assistance, was implemented as part of the 2017 Tax Cuts and Jobs Act (TCJA). Nonprofits have been advocating for repeal for more than a year, arguing that the tax is proving to be a burden for the nonprofit community. The coalition notes that many churches and small charities have little or no experience dealing with the IRS and insufficient guidance on how to calculate the value of parking and other benefits provided to their employees.

The Treasury Department issued interim guidance on the tax late last year, acknowledging concerns raised by the nonprofit community. The guidance allows tax-exempt organizations to retroactively reduce the amount of nondeductible parking expenses and provides a safe harbor for nonprofits to potentially exclude all parking expenses from the tax. The guidance stipulates that only parking expenses associated with employee reserved spots are included when calculating unrelated business income tax.

Tax-exempt groups have until March 31 to eliminate their employee-reserved spots and avoid the tax entirely. Treasury also provides estimated tax penalty relief for 2018 for tax-exempt organizations that offer these benefits.