Does Your Nonprofit Have To File The Unrelated Business Income Tax Form 990-T?
You’ve probably heard the news regarding the IRS Notice for Parking Expense for Qualified Transportation Fringes under Section 274(a)(4) and Section 512(a)(7). If you (like many other nonprofit leaders) think you won’t be influenced by this act, you should reevaluate your organization’s standing and prepare for the regulatory changes.
This notice gives guidance for taxpayers to calculate the total parking expenses for qualified transportation fringes that is nondeductible under the Internal Revenue Code and for tax-exempt organizations to determine the increase of unrelated business taxable income (UBTI) applicable to the nondeductible parking expenses.
Furthermore, Section 512(a)(7) generally states a nonprofit organization’s unrelated business income tax is increased by the amount of Qualified transportation fringes that are nondeductible under Section 274. Additionally, Section 274 does not apply to nonprofit organizations but an exception applies with regard to determining their deductions connected with unrelated businesses.
Under Section 512(a)(7), the UBTI described in Section 511(a)(2), for tax-exempt organizations, is increased by the amount of deduction that is not allowable by reason of Section 274 and is paid or incurred by the organization for any Qualified Transportation Fringes as defined in Section 132(f) and includes the following:
- Transportation in a commuter highway vehicle between the employee’s residence and place of employment
- All transit passes
- Qualified parking – This is defined in Section 132(f)(5)(C) as parking provided to an employee on or near the business premises of the employer or near a location from which the employee commutes to work.
Remember, all nonprofit organizations are required to file a Form 990-T, Exempt Organization Business Income Tax Return, if they have a gross income of $1,000 or more. This threshold amount will also apply to the Section 512(a)(7) that relates to UBIT.
In order to get a better understanding of the rules, you should take a look at the Notice 2018-99 on the IRS website. In the meantime, email Rea & Associates to learn more about the rules and how to prepare your nonprofit organization for the changes.
By Teresa Wisniewski, CPA, QuickBooks ProAdvisor® (Cleveland office)