Skip Navigation or Skip to Content

IRS Provides Interim Guidance on UBTI Attributable to Parking Expenses

The 2017 Tax Cuts and Jobs Act (TCJA) enacted Code Section 512(a)(7), which requires tax-exempt organizations to treat qualified transportation fringes (QTFs) as unrelated business taxable income (UBTI). Since the enactment of this new Code Section, tax-exempt organizations have been waiting on guidance from the Treasury and IRS to determine methods under which certain QTFs should be valued. On December 10, the IRS released Notice 2018-99 to provide interim guidance regarding the definition and calculation of parking expenses as a QTF until the proposed regulations are published.

What is a qualified transportation fringe?

QTF benefits includes transportation in a commuter highway vehicle between the employee’s residence and place of employment, any transit pass, and qualified parking.

Qualified parking is defined by the Internal Revenue Code as parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work. Notice 2018-99 clarifies the definition to include, but is not limited to, repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent or lease payments or a portion of a rent or lease payment (if not broken out separately). Depreciation is specifically excluded from the definition, as well as expenses paid for items not located on or in the parking facility.

Calculating parking expenses

Note: Organizations will have until march 31, 2019 to mitigate their tax liability by changing their parking arrangements to decrease or eliminate their reserved employee spaces (the changes will be retroactive to January 1, 2018).

A.   Organization pays a third party for employee parking:

The nondeductible expense is generally calculated as the total annual amount paid to the third party. However, if the parking expense exceeds the monthly limit on exclusion ($260 per employee for 2018) and the excess amount is treated as taxable wages to the employee, the total of the monthly amount in excess is excepted from UBTI.

B.   Organization owns or leases all or a portion of a parking facility:

Notice 2018-99 provides a four-step process for determining parking expenses when the organization owns or leases the parking facility used for employee parking.

Step 1: Identify the number of spots in the parking facility (or the organization’s portion thereof) exclusively reserved for employees. The method of reserving these spaces can vary, but examples include specific signage identifying employee parking or certain sections of the facility segregated by a barrier to entry. Then determine the percentage of reserved employee spots in relation to total parking spots and multiply the percentage by the total parking expenses for the facility. The product is the amount of total parking expense that must be included in UBTI.

Step 2: Identify the remaining parking spots in the parking facility to determine whether their primary use is to provide parking to the general public. If true, then the remaining total parking expenses are not considered UBTI. For purposes of Notice 2018-99, “primary use” means greater than 50% of actual or estimated usage of the parking spaces (non-reserved spaces that are available but empty are treated as provided to the general public).

Step 3: Identify the number of parking spots in the facility, or the organization’s portion thereof, exclusively reserved for non-employee parking (such as visitors and customers), determine the percentage in relation to the remaining total parking spots, and multiply that percentage by the remaining total parking expenses. The product is the amount of remaining total parking expenses that should not be included in UBTI.

Step 4: For any remaining parking spots not identified in steps 1 – 3, organizations must reasonably determine the employee use of the remaining parking spots during normal hours on a typical day and the related expenses allocable to employee parking spots.

Estimated tax relief for tax-exempt organizations

The IRS also released Notice 2018-100 providing penalty relief for the underpayment of estimated tax, to the extent the underpayment results from these qualified parking expenses. The relief applies to tax-exempt organizations that provide QTF’s to employees for which estimated taxes were due as of December 17, 2018, and the organization was not required to file a Form 990-T for the taxable year preceding the first taxable year ending after December 31, 2017. The 990-T and tax liability must also be timely filed and paid in order to qualify for penalty relief.

In order to claim the penalty waiver under this notice, the organization must write “Notice 2018-100” on the top of its Form 990-T.

The IRS acknowledges that this guidance falls late in the year and taxpayers that own or lease parking facilities may have already adopted reasonable methods in 2018 to determine the amount of their nondeductible parking expenses. Therefore, until further guidance is issued, organizations may either rely on this guidance or use any reasonable method for determining nondeductible parking expenses related to employer-provided parking.

For more information about this article, please contact our tax professionals at or toll-free at (844) 252-7337.

Learn more about our Tax & Accounting Services practice

IRC § 132(f)(5)(C)
IRC § 132(a)(5)
Payments OnlineTaxCaddy
Secure File TransferWindes Portal