As Congress continues to talk repeal, IRS and Treasury release interim guidance on I.R.C. Section 512(a)(7).  How will this guidance affect Bible Colleges and Seminaries?


Denali Christian College (DCC) 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.

The new “Parking Tax” (Section 512(a)(7)) guidance in Notice 2018-99 features:

  • A listing of the types of expenses that are included in “total parking expenses”
  • An opportunity to make a retroactive change to “parking arrangements” – to change parking space designations from “Employee Only” – up until March 31, 2019 (more on that next week)
  • A somewhat algebraic, four-step “safe harbor” reasonable method of calculation of the addition to an institution’s unrelated business taxable income in accordance with Section 512(a)(7)
  • Step 2 of the prescribed methodology includes a “50% rule” whereby expenses for parking spaces not reserved for employees may be disregarded if more than 50% of parking is provided to the “general public”
  • Limited penalty relief for some institutions who have not paid estimated taxes for the “Parking Tax” they may owe for years ending in 2018 and/or 2019 (Notice 2018-100).

Remember, Section 512(a)(7) is concerned with amounts “paid or incurred” after December 31, 2017.  DCC has a parking lot with 400 spaces.  40 spaces are labeled “Faculty Only.”  25 spaces are labeled “Visitors Only.”  The cost to build 8 years ago was $600,000.  It is being depreciated over 15 years.  They lease a surveillance system for $36,000 per year.  DCC estimates the compensation of various security personnel assigned to the parking lot to be $80,000 annually.  In addition, they pay $16,000 for sweeping/cleaning the lot.  They have a total of 100 employees who drive to work and park in the lot.  Depreciation is specifically excluded by the new guidance.

DCC’s annual parking expenses are as follows:

Security comp. =              $  80,000

Surveillance =                   $  36,000

Utilities =                            $    4,000

Sweeping/cleaning =     $  16,000

TOTAL =                            $136,000

Using the prescribed 4-step methodology, here’s how DCC will fare under the new guidance:

Step 1: Calculate the disallowance for reserved employee spots

40 of DCC’s parking spaces are reserved for employees.  So 10% (40 / 400) of the “total parking expenses” are includable as UBTI.  Thus, DCC must increase its UBTI by $13,600 for this portion of the calculation.

Step 2: Determine the primary use of the remaining spots

This is the “50% general public parking rule.”  DCC has 360 parking spaces remaining after Step 1.  Because DCC has 100 employees and 40 could park in reserved employee spots, that leaves 60 employees parking in the remaining spots.  So, 300 of the 360 spots remaining after Step 1 may be used by the “general public” during “the normal hours of the exempt organization’s activities on a typical day.”  Thus, DCC’s Step 2 percentage is 83.33% – greater than the 50% required threshold.  Thus, they are done – they’ve accounted for all 400 spaces in their parking “universe.”

Step 3: Calculate the allowance for reserved nonemployee spots

If DCC had not met the greater than 50% threshold in Step 2, they would have had to opportunity to decrease the employee allocation of remaining use by excluding from the calculation the number of parking spots reserved for nonemployees.  In DCC’s case, this would be the 25 spaces labeled as “Visitors Only.”  This would mean that 25 / 360 (6.94%, or $9,444) would appear to be an “add back” against the employee use amount in Step 4.

Step 4: Determine the remaining use and allocable expenses

If DCC had not met the 50% threshold in Step 2, they would have had to “reasonably determine the employee use of the remaining parking spots during the normal hours of exempt organization activity on a typical day.”  This is where things might get expensive.  In DCC’s case, if they did not meet the 50% rule in Step 2, they would have remaining employee use calculated at 60 / 335 (400 – Step 1 spots – Step 3 spots) multiplied by “total parking expenses” – which would have added an additional $24,358 to their imputed UBIT of $13,600 (Step 1).  Note that Step 3 may affect this final amount.

In our example, if they did not have other unrelated business activities, DCC would owe $2,646 in tax ($13,600 – $1,000 specific deduction = $12,600 x 21%).

DCC could potentially eliminate their “Parking Tax” if they “undesignated” the “Faculty Only” parking spots prior to March 31, 2019.  The notice allows for this “change in parking arrangements” to be considered retroactive to January 1, 2018.  (More on that next week.)



From Notice 2018-99:

For purposes of this notice, “total parking expenses” include, but are not limited to, repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent or lease payments or a portion of a rent or lease payment (if not broken out separately). A deduction for an allowance for depreciation on a parking structure owned by a taxpayer and used for parking by the taxpayer’s employees is an allowance for the exhaustion, wear and tear, and obsolescence of property, and not a parking expense for purposes of this notice.  [Underline added]

For purposes of § 274(a)(4) and this notice, the “general public” includes, but is not limited to, customers, clients, visitors, individuals delivering goods or services to the taxpayer, patients of a health care facility, students of an educational institution, and congregants of a religious organization. The general public does not include employees, partners or independent contractors of the taxpayer.

From Notice 2018-100:

Accordingly, in the interest of sound tax administration, the addition to tax under section 6655 for failure to make estimated income tax payments otherwise required to be made on or before December 17, 2018, is waived for certain tax-exempt organizations that provide qualified transportation fringes (as defined in section 132(f)) and any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)) to an employee to the extent that the underpayment of estimated income tax results from enactment of section 13304(c) and section 13703 of the Act. This relief is available only to any tax-exempt organization that was not required to file a Form 990-T for the taxable year immediately preceding the organization’s first taxable year ending after December 31, 2017. This relief is limited to tax-exempt organizations that timely file Form 990-T and timely pay the amount reported for the taxable year for which relief is granted.



  • Under the new guidance, depreciation is not included in the “total parking expenses” used to impute UBTI for institutions subject to these rules.
  • Using a “50% primary use rule” for general public parking, most Bible Colleges and Seminaries should be able to minimize and/or eliminate the potential “Parking Tax.”
  • You will likely be liable for taxes on the costs allocated to “Employee Only” parking spots. This may be “fixed” by re-designating those spaces before March 31, 2019.
  • Notice 2018-100 provides limited penalty relief for the non-payment of estimated payments owed in 2018, but the provisions are badly worded.


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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