Nonprofit Alert: IRS Issues Guidance on Refunds for Paid Qualified Transportation Taxes

By Magdalena M. Czerniawski |  Robert Lyons  |  January 23, 2020

On December 20, 2019, the President signed legislation into law that included a retroactive repeal of Code section 512(a)(7), eliminating the tax on transportation fringe benefits provided by nonprofit employers to their employees. Section 512(a)(7) was enacted as part of the Tax Cuts and Jobs Act of 2017, with Form 990-T Exempt Organization Business Income Tax Return used to report the tax. The filing process for Section 512(a)(7) became very cumbersome, as the date of enactment was for years beginning after December 31, 2017, creating major issues for fiscal year filers. The IRS was not forthcoming with guidance as to how to calculate the tax on fiscal year returns until 3 weeks after the final due date for June 30, 2018 returns (2017). The IRS also did not revise the Form 990 until 2018. This required multiple filing procedures depending on the organization’s fiscal year.

At the time of the repeal on December 20, 2019, the IRS said that they would have a plan in place within two weeks as to how to apply for a refund of the previously paid tax. Governmental and legislative officials asked the IRS to find a simple way to process the refunds. However, the bittersweet news announced on January 22, 2020, is that the IRS and Treasury have instituted the most cumbersome of all the possible refund methods available. More information on how to claim a refund for paid Qualified Transportation Tax is below.

Claiming Your Refund

Organizations requesting a refund are required to file amended returns for the 2017 fiscal year and 2018 fiscal and calendar year. For the 2019 fiscal and calendar year, organizations that haven’t filed their 990-T yet need to file a blank 990-T to request a refund, otherwise, they will need to file an amended return as well. The IRS has provided practitioners with specific instructions as to how the amended returns are to be prepared, which unfortunately complicates the process and requires additional time in the processing of the refunds. In cases where interest and penalties were charged for late filing, those amounts should also be refunded, though the IRS has not yet provided guidance as to how those amounts will be refunded.

Keep in mind that the time limits for filing refund claims found in IRC Section 6511 apply to these refund claims. Typically, these time limits are three years from the time the original Form 990-T was filed, or two years from the time the tax was paid, whichever is later. Due to staffing constraints on the part of IRS, refunds may be processed slowly, at which point the IRS would have to pay interest on the refund amounts.

Given that the refund process is not automatic, organizations who believe they are owed a refund are encouraged to contact Magdalena M. Czerniawski, Partner, at (212) 524-7026 or or Robert Lyons, Director, at (212) 710-1736 or for more detailed information.

About Magdalena M. Czerniawski

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Magdalena M. Czerniawski, CPA, MBA, is a Partner at Marks Paneth LLP and a member of the firm’s Nonprofit, Government & Healthcare Group. With over 15 years of nonprofit industry experience, she provides tax services to a wide array of nonprofits, including charitable organizations, schools, social welfare organizations, professional associations and private foundations. In addition to providing tax planning and advisory services, Ms. Czerniawski specializes in matters related to ASC 740-10 (FIN 48), the reporting... READ MORE +

About Robert Lyons

Robert Lyons Linkedin Icon

Robert (Rob) Lyons, CPA, MST, is a Tax Director, Exempt Organizations in the Nonprofit, Government & Healthcare Group at Marks Paneth LLP. Mr. Lyons brings to this role the skills he has developed during more than 30 years of providing tax and consulting services to his clients in the nonprofit, higher education, and public sector industries. His experience includes handling substantial exempt organization tax issues. Mr. Lyons has testified in front of the House and Ways Committee in... READ MORE +

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