Bipartisan Support for Repeal of Tax on Nonprofit Transportation Benefits

By Magdalena M. Czerniawski |  Robert Lyons  |  December 18, 2019

A bipartisan tax relief proposal, which includes the repeal of the tax on transportation benefits under Code section 512(a)(7), passed the U.S. House of Representatives on December 17, 2019.

Code Section 512(a)(7) imposes an unrelated business income tax on nonprofits and religious institutions, which have never had a filing requirement, for their expenses associated with providing transportation benefits to their employees.  Under the current law, nonprofits, including houses of worship, have to pay a 21-percent tax on the amounts they spend providing transit passes and certain parking arrangements to their management and employees.  Organizations in New York, Washington D.C. and certain cities in California have been particularly affected because offering transit pass benefits is required for organizations with more than 20 employees.  These rules apply to religious organizations that historically were exempt from filing information returns.

The repeal is included as an amendment by Committee Chair Nita Lowey (D-NY).  It is expected that this amendment will be added to H.R. 1865 – National Law Enforcement Museum Commemorative Coin Act.  Before the bill takes effect, it must be passed by the Senate and signed into law by the President. Fortunately, in this period of political unrest, both parties agree that the repeal is necessary. The law will be retroactive, striking the Code Section from the Tax Cuts and Jobs Act (TCJA). However, the exact mechanics will be worked out in the near future as to how prior payments, extension payments and filing of Form 990-T will be handled.  There is little disagreement in both the House and Senate that Code Section 512(a)(7) is bad tax policy, which has been apparent since the amendment was approved by the House Ways and Means Committee on June 20, 2019.

The bill is expected to be signed by the President shortly. How the IRS will go about unwinding the tax already paid will be interesting to follow.

If all goes well, it will turn out to be a most welcome holiday gift for those charities who have paid tax. The professionals in our Nonprofit, Government & Healthcare Group will continue to monitor the situation as it unfolds.

About Magdalena M. Czerniawski

Magdalena M. Czerniawski Linkedin Icon

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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