IRS Issues Guidance for Determining Nondeductible Parking Fringe Benefits

By Magdalena M. Czerniawski  |  December 20, 2018

IRS Issues Guidance for Determining Nondeductible Parking Fringe Benefits

While two sections of the Tax Cuts and Jobs Act (“the Act”) - Code section 512(a)(6) and Code section 512(a)(7) - have a direct and significant bearing on tax-exempt organizations, very little guidance has been forthcoming since the law was passed almost a year ago. The purpose of these two sections is specifically to bring parity between not-for-profit organizations and their for-profit counterparts. Recently issued IRS guidance is finally shedding light on how this will be accomplished. 

First, on August 21, 2018, the IRS issued Notice 2018-67 with guidance concerning Code section 512(a)(6). That notice addressed the separation of different lines of business for Unrelated Business Income Tax (UBIT) purposes.

In addition, it addressed the treatment of net operating losses both pre-enactment and post-enactment of the Act.

More recently, on December 10, 2018, the IRS issued Notice 2018-99 and Notice 2019-100 regarding Code section 512(a)(7), which relates to the treatment of the nondeductible portion of parking and transportation fringe expenses as unrelated business taxable income (“UBTI”).

Notice 2018-99 provides interim guidance for taxpayers to determine the amount of parking expenses related to qualified transportation fringes (“QTFs”) that are not deductible by the organization. Those expenses under IRC 512(a)(7) are the increase in the amount of UBTI and, therefore, subject to tax. In contrast to other provisions in the Act, the transportation fringe benefit tax relates to benefits paid after December 31, 2017. Fiscal year filers will need to differentiate tax treatment of these benefits between post- and pre-January 1, 2018 benefits.


In order to fully understand Notice 2018-99, the below definitions are important.

  • Qualified Transportation Fringes include transportation in a commuter highway vehicle between the employee’s residence and place of employment, any transit passes, and qualified parking.
  • Qualified Parking includes 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. (Does not include residential parking.)
  • Employee includes any individual who is currently employed by the employer. It also includes common law employees and other statutory employees such as officers of the corporation. Common law and statutory employees look to the state definition. For example, where there are leased employees that under state law meet the definition of a statutory employee, the organization would be responsible for the treatment of the related fringe benefits provided to them.
  • Parking Facility is defined as any indoor and outdoor garages and other structures, as well as parking lots and other areas, where employees may park on or near the business premises of the employer or on or near a location from which the employee commutes to work.


The notice points out two exceptions for tax-exempt organizations that would otherwise pay UBIT on the transportation benefits provided to employees. The first one is if the organization includes the full value of the transportation benefits as taxable wages to the employee. The second one is when the organization provides the benefits to employees on the same basis as the general public. In both cases, the exempt organization wouldn’t be liable for any tax under 512(a)(7). If the organization does not meet either of these two exceptions, it is subject to tax.

Further, the notice addresses that the transportation benefits can be provided tax-free to employees up to the maximum amount allowed. That amount for 2018 is $260 per month. Any benefits provided above that amount must be included in the taxable wages of the employee, and therefore, will not be taxable to the organization.


The notice specifically offers guidance to determine the nondeductible amount of parking expenses as well as the amount treated as increasing UBTI. The method of determining the nondeductible amount depends on whether the taxpayer pays a third party to provide parking for its employees or owns or leases a parking facility where its employees park.

  • Taxpayer Pays a Third Party for Employee Parking Spots. If a taxpayer pays a third party for a space so that its employees can park at that facility, the disallowed portion is generally the total amount paid to the third party. However, if the amount the taxpayer pays exceeds the monthly allowance ($260 for 2018) per employee, the excess amount must be treated by the organization as wages to the employee. In determining the value of parking facilities, multiple parking facilities within the same geographic area can be aggregated in determining the number of spaces available. However, if the facilities are located in more than one geographic area they must be determined on a separate basis.
  • Taxpayer Owns or Leases All or a Portion of a Parking Facility. Until more guidance is available, the value of the disallowed portion can be calculated by any reasonable means. The notice states that the total parking expenses for purposes of determining the disallowed amount include repairs, maintenance, insurance, property taxes, interest, snow and garbage removal, landscaping costs, parking lot attendance expenses, etc.
  • Notably missing from this list is depreciation expense of the parking facility. Per this notice, an allowance for depreciation on a parking structure owned by an organization is not a parking expense for purposes of 512(a)(7).


  1. Calculate the disallowance for reserved employee spots. This specifically refers to the number of spots in a parking facility exclusively reserved for the organization’s employees, which could be determined by signage. The organization must determine the percentage of reserved employee spots in relation to total parking spots and multiply that percentage by the organization’s total parking expenses for the facility. This will be the amount of disallowed fringe subject to tax. Organizations have until March 31, 2019 to decrease or eliminate their reserved employee spots for purposes of the disallowance retroactive to January 1, 2018.
  2. Determine the primary use of remaining spots. The organization can identify the remaining parking spots in the facility and determine whether their primary use is to provide parking to the general public or to employees. If the primary use is for the benefit of the general public, then the remainder of the expenses are not taxable. Primary use of a parking spot is tested during normal business hours on a typical business day. Non-reserved spots that may remain empty in the normal course of business are deemed for the benefit of the general public. The general public does not include employees, partners or independent contractors of the organization.
  3. Calculate the allowance for reserved nonemployee spots. If the primary purpose is not to provide parking to the general public, then the organization must determine parking that is restricted for visitors and customers. If the organization has reserved nonemployee spots, it can determine the percentage of reserved nonemployee spots in relation to the remaining total parking spots and multiply that percentage by the taxpayer’s remaining total parking expense. Again, this would be the amount not subject to tax.
  4. Determine remaining use and allocable expenses. If after completing steps 1-3 the organization still has expenses that were not categorized, they should reasonably determine the employee use of the remaining parking spots during normal business hours on a typical business day. Expenses associated with those spaces would be disallowed.

The notice offers a large number of examples and has attempted to capture all the various alternatives for parking arrangements, and a few are listed below.

Many situations are unique and specifically associated with the organization. Until further guidance is provided, an organization should use the four steps outlined above on a consistent basis in calculating the disallowed fringe benefit. Each set of circumstances should be evaluated separately to determine the disallowed amount, if any.


In addition, the notice also addresses the fact that if an organization’s UBTI is below $1,000, the organization can use the specific deduction of $1,000 and is not required to file a tax return to report these benefits. Furthermore, the notice states that organizations having only one line of business can use the excess expenses to offset the disallowed transportation fringes derived from such unrelated trade or business. However, it does not provide further guidance on how to determine that.

While the notice does not specifically address pre-taxed transportation passes such as train, bus or subway passes, it does address pre-tax parking benefits and the tax treatment on the part of the organization. Since the transit passes fall within the classification of QTF, the pre-tax treatment of those passes would be the same as pre-tax parking  facilities. 

Below are a few examples included in the Notice 2018-99 as mentioned above.

Example 1 - Organization pays B, a third party who owns a parking garage across the street from the Organization, $100 per month for each of the Organization’s 10 employees to park in B’s garage - or $12,000 per year (($100X10) X 12= $12,000). The $100 per month paid for each employee for parking is excludable from their wages because it is under the $260 limitation. Thus, the entire $12,000 is subject to disallowance. 

Example 2 - Assume the facts in Example 1, except the Organization pays $300 per month per space for a total of $36,000. Of the $300 per month paid for each employee, only $260 is excludible from the employee’s wages. As such, the total amount included in the employee’s wages (or $31,200) would be disallowed and subject to UBTI. However, the remaining amount of $4,800 would be picked up by the employees as compensation and not UBTI.

Example 3 – The primary use of C’s parking lot is to provide parking to the general public because 90% of the lot is used by the public. There are no spots reserved for employees. As such, expenses allocable to the parking lot are excluded from the disallowance.


The IRS also issued Notice 2018-100, which grants relief for underpayment of estimated income tax payments resulting from the disallowed fringe benefits discussed above. Relief is only granted to tax-exempt organizations that provide QTFs to an employee for which estimated income tax payments are made solely as a result of the Act and that was not required to file a Form 990-T, Exempt Organization Business Income Tax Return, for the taxable year preceding the organization’s first taxable year ending after December 31, 2017.

This relief is limited to tax-exempt organizations that timely file Form 990-T (including extensions) and timely pay the amount reported for the taxable year for which relief is granted.

To claim the waiver under Notice 2018-100, the tax-exempt organization must write “Notice 2018-100” on the top of its Form 990-T.


In summary, Notice 2018-99 provides much needed guidance on how to determine the amount of parking expenses that are subject to IRC 512(a)(7) depending on the specific circumstances. It also provides ways  for an organization to avoid transportation tax altogether. This is temporary guidance, and the IRS is looking for comments, but it is very important  to tax-exempt organizations. In addition, the penalty relief in Notice 2018-100 is particularly noteworthy to organizations that are filing Form 990-T as a result of this new code section.

If you have further questions on how these new provisions apply to your tax-exempt organization, contact Magdalena M. Czerniawski, Tax Director at Marks Paneth’s Nonprofit, Government and Healthcare Group.

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 +

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