New Internal Revenue Code Section 512(a)(7) which creates UBIT for “qualified transportation fringes,” may affect far more institutions than first suspected.



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.

The Controller at MBC read last week’s “Tax Tips” and called to ask about their “employee-only” parking lot.  MBC is a small college in the Florida Keys.  They have 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.

“Will this cause unrelated business income under Code Section 512(a)(7)?” they ask.

Our answer. “Probably.”  We are awaiting guidance on this important issue, but it would appear that – for MBC and their “faculty & staff only” lot – $2,400 ($800 x 3 gradings) plus any other amounts expended on the “dirt lot” would need to be reported on Form 990-T, Part I, Line 12.  At present, it appears that the $1,000 “specific deduction” (Form 990-T, Part II, Line 33) could be deducted from this “imputed UBI.”  Also, charitable contributions made by MBC (Form 990-T, Part II, Line 20) might be deductible (but with regard to the “10% taxable income limit”).



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)).”

From IRS Notice 94-3 (Question 1d):


  • d. QUALIFIED PARKING. “Qualified parking” is access to parking provided to an employee on or near the employer’s business premises or at a location from which the employee commutes to work by car pool, commuter highway vehicle, mass transit facilities, transportation provided by any person in the business of transporting persons for compensation or hire, or by any other means. The term does not include parking on or near property used by the employee for residential purposes.

Qualified parking means parking for which an employer pays (directly to a parking lot operator or by reimbursement to the employee), or that an employer provides on premises it owns or leases.

For purposes of the definition of qualified parking, a car pool means two or more individuals who commute together in a motor vehicle on a regular basis.”  (Underlines added.)



  • The “Tax Cuts and Jobs Act” added new Section 512(a)(7) which “imputes” UBIT for exempt organizations who provide certain employee fringe benefits – but things are getting out of hand.
  • We are patiently awaiting guidance from the IRS/Treasury on this important tax issue.
  • There is hope that the IRS will delay implementation of the new Section 512(a)(7) – and other new sections – until guidance is provided.
  • Could the expenses for a dirt parking lot seriously cause a college to have unrelated business income taxed at a 21% rate?

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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