ISSUE

The recently-released 2018 Draft Form 990-T instructions give guidance for institutions filing the form simply to pay the new “parking tax.”  How does that work with the 2017 Form 990-T?

 

SITUATION

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 tax year ends on June 30.

MBC has a “faculty & staff only” dirt (well, sand and crushed oyster shell) parking lot that has room for 22 vehicles.  Three times a year, due to heavy rains, MBC has this parking lot graded to ensure proper drainage (akin to snow removal in other climes).  The cost is $800 per grading – $2,400 annually.

Convinced that they will ultimately owe $294 in tax ($2,400 – $1,000 x .21 for the ended June 30, 2019 – using the 2018 Form 990-T), their Controller calls us to ask about filing the Forms 990-T for 2017 and 2018.  Note that for the six month period in 2018 (1/1/18 – 6/30/18) the amount would depend upon the amounts “paid or incurred” – how many times they graded the lot – but the tax rate would still be 21%.  Also note that MBC’s Form 990-T (2017 form) is due November 15, 2018, but can be extended for six months using Form 8868.

We tell them that the DRAFT 2018 Form 990-T instructions have specific information for “limited” reporting for institutions who are to file Form 990-T for “Qualified Transportation Fringe Benefit UBTI Only.”  If we use that same logic on the 2017 Form 990-T, it would appear that completing the form would entail the following (along with totals in each section):

  • The heading (above Part I) except C, E, H, and I;
  • Part I, Line 12 (for amount of “imputed income” – see previous guidance below)
  • Part II, Line 33 (Specific deduction of $1,000)
  • Part IV, Line 44 (we suggest including a statement with the 21% tax calculation referenced to Form 990-T, Part IV, Line 44); and
  • Signature area.

**Note that, based upon the 2018 instructions, it does not appear that an institution can utilize a deduction for Charitable contributions (Part II, Line 20) against this new “imputed income.”

 

RULES

From 2018 Form 990-T Instructions (Draft), Page 5:

Qualified Transportation Fringe Benefit UBTI Only

Organizations that are required to file Form 990-T only because they have UBTI in excess of $1,000 under section 512(a) (7) for expenses for certain qualified transportation fringe benefits must complete the following.

  • The heading (above Part I) except C, E, H, and I;
  • Part III and IV (complete only the relevant lines); and
  • Signature area.

 

From IRS webpage: “Increase in unrelated business taxable income by disallowed fringe benefits”:

For organizations that have employees, unrelated business taxable income (UBTI) is increased by new Internal Revenue Code section 512(a)(7). Under section 512(a)(7), UBTI is increased by any amount for which a deduction is not allowable because of section 274 and which is paid or incurred by the organization after December 31, 2017, for any qualified transportation fringe (as defined in section 132(f)), or any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)). This rule does not apply to the extent the amount paid or incurred is directly connected with an unrelated trade or business which is regularly carried on by the organization. For organizations with a fiscal tax year that begins in 2017, enter the amount of any increase in UBTI on line 12 of the 2017 Form 990-T.

(https://www.irs.gov/forms-pubs/increase-in-unrelated-business-taxable-income-by-disallowed-fringe-benefits)

 

BOTTOM LINE

  • We hope to have guidance very soon on the “parking tax” rules from I.R.C. Section 512(a)(7).
  • There are still a lot of folks who are unaware of this potential tax.
  • The draft instructions for the 2018 Form 990-T have explicit instructions for “Organizations that are required to file Form 990-T only because they have UBTI in excess of $1,000 under section 512(a) (7) for expenses for certain qualified transportation fringe benefits…”
  • It would appear that we could “interpolate” the 2018 instructions onto the 2017 form, substituting the directives for completing Part III (Line 34) to completing Part II, Line 12.

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.

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