IRS issues procedural guidance for requesting refund of parking tax for nonprofit organizations

The IRS has issued guidance on how to request a refund of any parking tax paid by nonprofit organizations. As a recap, the Tax Cuts and Jobs Act of 2017 created Internal Revenue Code Section 512(a)(7), which required nonprofit organizations to report as UBI and pay unrelated business income tax on any amounts paid or incurred by the organization for its employee transportation benefits, such as on-premise parking. This covered all such expenses incurred after December 31, 2017.

On December 20, 2019, the nonprofit community finally received long-awaited good news of the retroactive repeal of IRC Section 512(a)(7) with the passage of the Taxpayer Certainty and Disaster Relief Act of 2019. The repeal is retroactive back to December 31, 2017. This means that nonprofit organizations will no longer have to “pay taxes on an expense”. It also means that those organizations that have already paid the parking tax in 2018 and 2019 can now seek a refund of the taxes paid.

The IRS has finally issued guidance of the procedure to be used for claiming these refunds, which is to file an amended Form 990-T for each separate year affected. We were hoping for the procedure to be a bit more streamlined, but at this point, everyone is just grateful for the repeal…

If the amended return is being filed only to claim the refund, credit or adjust information due to the repeal of IRC Section 512(a)(7), then the top of the amended Form 990-T should reflect “Amended Return – Section 512(a)(7) Repeal.” The nonprofit organization should complete this Form 990-T as it was originally filed, with the exception of not reporting the Sec. 512(a)(7) transportation benefits (previously reported as part of Other Income on a 2017 Form 990-T or on Line 34 for Amounts Paid for Disallowed Fringes on a 2018 Form 990-T). Complete the rest of the Form 990-T based on this revised entry. The amended Form 990-T must also have a statement attached indicating the line numbers on the original return that were revised and the reason for each change (for example, stating “Repeal of Section 512(a)(7)”).

There is a time limit for filing a refund claim per IRC Section 6511. Generally, the amended return must be filed within three years from when the original Form 990-T was filed with the IRS or two years from the time the tax was paid, whichever is later.

For more information on this Tax Blast, please contact any of the following individuals:

Name: Nanaz Benyamini
Office: Los Angeles, CA
Email: [email protected]

Name: Lior Temkin
Office: Los Angeles, CA
Email: [email protected]