Relief for Tax Exempt Entities Providing Qualified Transportation Fringe Benefits
Included in the spending bills that Congress is considering this week is relief from a provision of the Tax Cuts and Jobs Act of 2017 that applied to tax exempt entities that provide their employees with qualified transportation fringe benefits (e.g., qualified parking, transit passes and vanpooling).
The Tax Cuts and Jobs Act changed some of the tax rules regarding qualified transportation fringe benefits provided by employers to employees One change was that employers that provided qualified transportation fringe benefits were no longer allowed to deduct those expenses. For tax-exempt entities, the Tax Cuts and Jobs Act required that their unrelated business taxable income be increased by the amount of any qualified transportation fringe benefit for which a deduction is disallowed under section 274 of the Code. This means that tax-exempt entities were required to pay an unrelated business income tax (UBIT) on any qualified transportation fringe benefit provided to employees for which employers are no longer permitted to take a deduction.
The spending bill under consideration by Congress this week contains a provision that would undo the rule under the Tax Cut and Jobs Act that tax exempt entities must increase their unrelated taxable income by the amount of the qualified transportation fringe benefit. Consequently, tax exempt entities will not be subject to UBIT by providing qualified transportation fringe benefits to their employees. It is anticipated that the spending bills will be approved by Congress and signed by President Trump before the end of this week. We will keep members informed as the legislation moves through Congress and to the President’s desk.