In July, APA joined a group focused on repealing a provision of the Tax Cuts and Jobs Act (TCJA; Pub. L. 115-97) that requires tax-exempt organizations to treat the costs of providing transportation fringe benefits to its employees as unrelated business income. The group is known as the Unrelated Business Income Tax (UBIT) Coalition and is led by the American Society of Association Executives (ASAE).
The TCJA, under §512(a)(7), requires tax-exempt organizations to pay UBIT if they provide employees with transportation and parking benefits. The 2018 IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, confirms that the TCJA applies to both employer subsidies paid to employees for these benefits and employee deferrals through a pretax compensation reduction agreement.
The UBIT Coalition asked for transition relief to delay implementation while employers consider the tax consequences. In a letter to Treasury Secretary Steven Mnuchin, ASAE wrote, “Because employees pay for transportation themselves through a payroll deduction in a pre-tax manner, tax-exempt employers have not previously viewed pre-tax compensation reduction agreements as a fringe benefit.” The situation is more complicated for tax-exempt organizations in locations that require employers of a certain size to offer transportation benefits.
The UBIT Coalition also is seeking a legislative fix. Four pending bills address the problem by repealing TCJA §512(a)(7). If Congress agrees to repeal the provision, the change will likely be part of broader tax administration measures. “Tax Reform 2.0,” being discussed in the House Ways and Means Committee, includes provisions making the TCJA permanent along with a range of proposals tied to retirement savings plans.
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