On December 20, 2019, Congress retroactively repealed Internal Revenue Code (IRC) Section 512(a)(7), which had increased unrelated business taxable income by amounts paid or incurred for qualified transportation fringes. The Internal Revenue Service (IRS) has now provided procedural instructions for nonprofits on how to seek a refund for tax paid under this section prior to its repeal.
Parking Tax Repeal
As reported in our prior LawFlash, Congress enacted the parking tax two years ago as part of the Tax Cuts and Jobs Act (TCJA). The tax was the nonprofit corollary to the deduction disallowance for qualified transportation fringes under Section 274 applicable to taxable employers. The Section 512(a)(7) tax worked by imposing unrelated business income tax on any qualified transportation fringe expenses paid by a tax-exempt employer if such expense would have been nondeductible to a taxable employer under Section 274. Congress repealed the tax retroactively on December 20, 2019, as part of the Taxpayer Certainty and Disaster Tax Relief Act of 2019.
Claiming a Refund
The IRS recently posted instructions on its website on how nonprofit organizations may claim a refund or credit of unrelated business income tax (UBIT) for qualified transportation fringe amounts. Organizations that paid UBIT under Section 512(a)(7) for 2017 or 2018 may claim a refund or credit of the amount paid by filing an amended Form 990-T for the applicable year. The instructions provide line-by-line guidance on how the amended Form 990-T should be completed depending on the applicable version of the Form 990-T (2017 or 2018), and instructs organizations to attach a statement indicating the line numbers from the original return that were changed and the reason for the change (i.e., “repeal of Section 512(a)(7)”).
The instructions also remind nonprofit organizations that the generally applicable time limits for filing refund claims applies to claims for a refund of tax paid under Section 512(a)(7) — typically, 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.