Historically, exempt organizations have been able to deduct charitable contributions (subject to limits) on Form 990-T, Part II, Line 20. This left a question with regard to this deduction and the “Parking Tax.” With the release of the draft 2019 Form 990-T, it appears things have been clarified.
Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii). They are required to file Form 990 annually.
MBC’s CFO called us back in 2017 (pre-TCJA) and asked about the potential deduction for charitable contributions and how that worked (see “Tax Tips” 6/22/17 at: https://www.abhe.org/form-990-t-charitable-contributions-deduction/).
MBC is wondering if their charitable contributions can be used as a deduction against the “Amounts for disallowed fringes” (the “Parking Tax”) on Form 990-T, Part III, Line 34 on the 2018 Form 990-T. This has been a “gray area” since the TCJA became official. IRS Notice 2018-99 does not address it directly and the 2018 Form 990-T instructions (Line 33 on the 2018 form) somewhat muddied the waters as the example given there was difficult to follow on the form.
Now, with the recent release of the DRAFT 2019 Form 990-T, we believe it is clear that the charitable contributions deduction can offset “BIP” (Bogus Income – Parking). Why? Because the IRS has moved the deduction for charitable contributions from Form 990-T, Part II, Line 20 to Part III, Line 34 – below the line for “Amounts paid for disallowed fringes.” Good news!
Note that the 2019 Form 990-T instructions have not yet been released and they may provide further information on this issue. We will be awaiting those instructions.
From 2018 Form 990-T Instructions (form updated with 2019 draft):
Enter contributions or gifts actually paid within the tax year to or for the use of charitable and governmental organizations described in section 170(c). Also, enter any unused contributions carried over from earlier years. For an organization’s 2018 tax year, an organization may report the charitable contribution deduction in any manner that results in full use of the allowable charitable deduction. See instructions for line 33.
Corporations. The total amount claimed normally can’t be more than 10% of unrelated business taxable income figured without regard to the following.
• Any deduction for contributions.
• Any capital loss carryback to the tax year under section 1212(a)(1).
From IRS Publication 598 (Rev. February 2019):
Charitable contributions deduction. An exempt organization is allowed to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with the unrelated business.
To be deductible, the contribution must be paid to another qualified organization. For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program.
For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution.
- If you file Form 990-T, the potential charitable contributions deduction has been moved on the 2019 Form 990-T (draft) to Part III, Line 34.
- It would appear that – given this positioning – charitable contributions (subject to limits) would be deductible against imputed parking income – and other UBI.
- It is a good idea to check your school’s Schedule I (Form 990) to ensure you are tracking which organizations you contributed to during the tax year – but that may not tell the whole story.
- The silo-ing rules under I.R.C. Section 512(a)(6) have complicated the charitable contributions deduction – be aware.
Specific questions? Email Dave Moja
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.
© 2019 Moja & Company, LLC