ISSUE

While Congress continues to procrastinate on repealing I.R.C. Section 512(a)(7), the IRS contemplates innovative ways to streamline dealing with this nonsensical law.

 

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.

The Accounting Team at MBC asked a timely question while we were on a video meeting with them this week:  “What’s going on with the ‘Parking Tax’?  Is Congress going to repeal it?”

“There does not seem to be much movement in Congress,” we answer.  “However, last week at a tax seminar in Washington, D.C., a speaker from the IRS’ Office of Associate Chief Counsel enumerated some forward-looking ideas that the IRS is working on with respect to Section 512(a)(7).  She stated that the IRS was ‘looking at a bunch of ideas and a bunch of simple safe harbors that people have suggested’.”  We told the MBC folks that those ideas include:

• For those organizations who lease space where parking is included but a charge is not specified in the lease, a set percentage of 5% or 10% of the total lease payment might be a simplified method of calculating parking expenses.
• Another method might be the IRS publishing average reported parking costs in different areas of the country and allowing organizations to use amounts from this “chart.”
• Alternatively, the IRS may set a simple dollar threshold – maybe per parking spot – for the calculation of parking expenses.
• Although Notice 2018-99 states that the value of employee parking is not a reasonable method, the IRS may rethink that position and allow some type of value proposition in the calculation.
• The IRS is “definitely not” planning to change its position that depreciation expense is not included in “total parking expenses.”

We also told the MBC accountants that we expect to hear more about these ideas next week at the AICPA’s Not-for-Profit Conference – film at 11.

 

RULES

From IRS Notice 2018-99:

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. (Page 8)

Using the value of employee parking to determine expenses allocable to employee parking in a parking facility owned or leased by the taxpayer is not a reasonable method because § 274(a)(4) disallows a deduction for the expense of providing a QTF, regardless of its value. Furthermore, for taxable years beginning on or after January 1, 2019, a method that fails to allocate expenses to reserved employee spots (within the meaning of step 1 in this section B) cannot be a reasonable method. (Page 7)

 

BOTTOM LINE

• The IRS is looking at promulgating guidance that would simplify and/or standardize the process of calculating an institution’s “total parking expenses.”
• For those who rent space, the IRS may allow a standard, set percentage (maybe 5 or 10 percent) of the total lease payment as a “safe harbor” for calculating the expense.
• Another innovative potential calculation method might be to allow reliance upon average reported costs for parking in different parts of the country or a simple, standard dollar threshold.
• Depreciation is excluded from total parking expenses, the IRS is “definitely not” planning to change course on this pronouncement.

 

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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