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Nonprofit Parking Tax Repealed; Private Foundation Excise Tax Changed to Flat Rate

On December 21, 2019, the U.S. President signed into law H.R. 1865, “Further Consolidated Appropriations Act, 2020” (the Act). The 715-page Act includes the repeal of the nonprofit parking tax, a modification to the private foundation excise tax rate, and other legislative changes that will impact the nonprofit sector.

Nonprofit Parking Tax Repealed

The Act retroactively repealed IRC§ 512(a) (7), what the nonprofit sector referred to as the “parking tax.” This parking tax was implemented under the 2017 tax law and required tax-exempt employers to pay a 21% tax on qualified transportation fringe benefits provided to employees. According to interim IRS guidance, employee-related expenses for third-party parking facilities, commuter transportation, leased parking facilities, and owned parking facilities were subject to the tax.

Churches, schools, libraries and other nonprofits impacted by the revision paid the tax and filed Forms 990-T for the 2018 tax year (some fiscal year filers also paid a blended tax rate for 2017). These tax-exempt organizations were burdened by the cost to pay the tax, the cost to amend transportation benefits, and the cost to file the forms.

This tax was repealed with bipartisan support and has relieved many nonprofit employers. Nonprofits that paid the tax in 2018 will receive a refund. Refund procedures, net operating loss revisions, and accounting changes are still to be determined. Until further guidance is provided, nonprofits can file amended Forms 990-T to claim their refunds.

Private Foundation Excise Tax

The Act also modified the excise tax rate on private foundation investment income. Prior to the Act, private foundations paid a 2% excise tax on investment income. If certain distribution requirements were met, that excise tax was reduced to 1%.

The modification reduces the excise tax to a flat 1.39%, thereby eliminating the option to qualify for the 1% tax rate. Section 206 of the Act states:

  1. IN GENERAL.—Section 4940(a) is amended by striking ‘‘2%” and inserting “1.39%”.
  3. EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of the Act.

Other Legislative Changes that Will Impact the Nonprofit Sector

Other legislation that will impact niche industries within the nonprofit sector include:

  • 60% and 10% limitations for contributions made to public charities for disaster relief have been suspended beginning January 1, 2018 and ending 60 days after the enactment of the Act. To be eligible, the donor has to obtain acknowledgement that the funds were or will be used for disaster relief.
  • The above-the-line tuition deduction for qualifying higher education expenses has been retroactively reinstated through December 31, 2020.

To read the Act in full, click here. For more information on the Act and how it will impact the nonprofit sector, please contact Chérie Williams at or at 844.4WINDES (844.494.6337).
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