New Internal Revenue Code Section 512(a)(7) may force your institution to file Form 990-T and pay unexpected taxes – ouch.



Saltwater Christian College (SCC) 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.

In meetings with SCC’s accounting team, we had a discussion about potential unrelated business income “imputed” on the “qualified parking” expenditures they make.  SCC has three types of employee parking:

  1. SCC rents 25 parking spaces in a church parking lot adjacent to campus. This parking is for faculty and staff only.
  2. They rent office space in a business park for a satellite campus 40 miles away from their main campus. The lease includes 30 parking spaces to be used for students, visitors, and employees.  There are 6 faculty and staff assigned to this campus.
  3. SCC maintains campus-wide parking at their main campus for faculty, students, staff, volunteers, visitors, etc. All parking is by permit except for limited spaces for visitors.

We tell them that we will analyze their “qualified parking” using three “baskets.”  Before looking at those classifications, let’s start with four comments.

First, we are ultimately awaiting guidance on “qualified parking” from Treasury and IRS.

Second, without getting too technical (and believe me it’s there!), we’ve heard much talk about “qualified parking” under I.R.C. Section 132(f)(5)(C) not being included for purposes of the new I.R.C. Section 512(a)(7) because Congress did not properly exclude I.R.C. Section 132(f)(5)(C) from I.R.C. Section 274.  However, at a meeting last week, government representatives stated that “qualified parking” is also included as a “qualified transportation fringe” under I.R.C. Section 132(f) and that 132(f)(5)(C) is a “subset” of 132(f).  I.R.C. Section 132(f) is included in Section 274.

Third, the taxes under this section are effective at 1/1/18 – not for tax years ending in 2018.  Thus any college, seminary, or university with taxable qualified parking began incurring “imputed” UBI beginning January 1, 2018.

Finally, it appears that section 512(a)(7) – with respect to “qualified transportation fringes” – is concerned with the “cost” of providing “qualified parking” rather than the “value” of this now “non-deductible employee fringe.”  This means that even if the value of the parking is zero dollars (i.e., no one would park there), the cost of maintaining the parking facility or lot would form the basis for computing the imputed UBI.  What a tangled web they’ve woven!

In analyzing the new “qualified parking” rules for all institutions, let’s look at three potential “baskets:”

Basket 1:  Reimbursements of employees for qualified parking (up to $260 per month for 2018) and payments to third parties for employee parking spaces.  Amounts paid/expended for these types of expenses are generally going to be included in unrelated business income for amounts paid after December 31, 2017.  It does not matter whether an institution makes these items taxable to the employee.  They are UBI.

Basket 2:  Amounts paid to provide or maintain “employee only” parking spaces.  Herein lies a conundrum.  As we await IRS/Treasury guidance, it would appear likely that these expenses might be included as UBI under section 512(a)(7).

Basket 3:  All parking provided on campus where employees are allowed to park – including lots that are utilized by students, employees, visitors, volunteers, etc.  It is our sincere hope that forthcoming guidance specifically excludes this general/overall parking from the UBIT rules of section 512(a)(7).  However – and this would be a colossal, gargantuan, silly administrative burden – we may end up having to invent an allocation methodology for employee parking percentages and then track expenditures (including depreciation) to impute “qualified parking” UBI.  Oh, great googly-moogly.

Back to our conversation with SCC.  It appears that the amount they pay the neighboring church for employee-only parking would be included in UBI under section 512(a)(7).  This would be reported on Form 990, Part I, Line 12.

For the satellite campus parking, the conservative approach (prior to IRS/Treasury guidance) might be to use a reasonable allocation method for monthly employee parking (maybe six spaces times work hours over 30 spaces times the hours the satellite campus operates) and multiply that amount by an amount allocated to the parking spaces with respect to the total monthly lease payment?  Then, we still need guidance on how to come up with expenses – if any – that may be reportable to offset this income.

As stated above, it is our sincere hope that IRS/Treasury guidance does not deem general campus parking for everyone who parks at your institution as “qualified parking” subject to UBIT under section 512(a)(7).  Considering expenditures for all parking to be UBI does not appear to be consistent with the intent of the new law which is concerned with now-non-deductible employee fringes.  Also, from an administrative standpoint, imposing rules whereby an allocation of all campus parking to employee parking would be very, very burdensome.



From Internal Revenue Code Section 512(a)(7):

“Unrelated business taxable income of an organization shall be increased by any amount for which a deduction is not allowable under this chapter by reason of section 274 and which is paid or incurred by such organization for any qualified transportation fringe (as defined in section 132(f)), any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)), or any on-premises athletic facility (as defined in section 132(j)(4)(B)).  The preceding sentence shall 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. The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations or other guidance providing for the appropriate allocation of depreciation and other costs with respect to facilities used for parking or for on-premises athletic facilities.”

From Internal Revenue Code Section 132(f)(5)(C):

“Qualified parking. The term ‘qualified parking’ means parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work by transportation described in subparagraph A, in a commuter highway vehicle, or by carpool. Such term shall not include any parking on or near property used by the employee for residential purposes.”



  • The “Tax Cuts and Jobs Act” added new Section 512(a)(7) which “imputes” UBI for exempt organizations who provide certain employee fringe benefits.
  • Section 512(a)(7) is meant to produce “parity” between not-for-profit and for-profit entities in that for-profits can no longer deduct these amounts.
  • We are patiently awaiting guidance from the IRS/Treasury on this important tax issue.
  • Wise institutions should be analyzing whether estimated tax payments should be made (on Form 990-W) with respect to possible “imputed” UBIT for years ending in 2018.

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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