EO& Churches - Qualifed Parking in the news

May I please ask for feedback. Does the following "whitepaper" make sense?

My issue is that I deal with a number of churches. A number of them have come to me of late asking the same question based upon media hype that "parking by church employees is now taxable". My church clients are trying to figure out how to calculate "parking income" for those who park in the church parking lot (free!) and where to report it.

I have drafted the following written response, and believe I have addressed their concerns. I reassure them that if they never had "qualified parking fringe benefit" before, they have none now either. As with anything written, well, you get my point.

Thanks for "proofing" the following:::::::::::::::::::::::::::::

Much media attention has been given to recent changes in the IRS Tax Code.

For the exempt organization community, three sections of the new tax law now take center stage.
• Section 13304 (Qualified parking, among other benefits, now at sunset.)
• Section 13702 (Impacting accounting standards of unrelated business income.)
• Section 13703 (Impacting taxability as unrelated business income on certain expenditures)

Section 13702 of the new tax bill now adds paragraph 6 to §512(a) with the following details.
1) Each unrelated business activity is now accounted for separately. Then sum the totals of all unrelated business
activities to determine total unrelated business income.
2) From this summation total, a single $1,000 deduction is available.
3) The result of this deduction cannot be less than $0.
4) Any previous net operating loss is grandfathered in and available.

Section 13703 of the new tax bill now adds paragraph 7 to §512(a) with the following details.
1) Previously, §274 insured many business expenditures were included as ordinary income and taxed accordingly.
This feature remains. The new law now also says that these same business expenditures are classified as
unrelated business income.
2) Qualified parking returns to no longer being a fringe benefit.

Section 13304:
Of particular interest is the impact of no longer allowing “qualified transportation fringe(s)” benefits to employees, including church employees. The new law relies upon another law concerning the definition of “qualified transportation fringe”. This second law then relies upon a third law to arrive at the definition of “qualified parking” . The actual administration of the law is in Treasury Regulation.

The regulation details how the (now expired) fringe benefit was to be applied. All that has happened is that this benefit is no longer available. Accordingly, any person who previously received this benefit no longer will.

Regulation: §1.132-9 (a) (1)
Q-4. What is qualified parking?

A-4.
(a) Qualified parking is parking provided to an employee by an employer—
(1) On or near the employer's business premises; or
(2) At a location from which the employee commutes to work (including commuting by carpool, commuter
highway vehicle, mass transit facilities, or transportation provided by any person in the business of transporting
persons for compensation or hire).

(b) For purposes of section 132(f), parking on or near the employer's business premises includes parking on or near a work location at which the employee provides services for the employer. However, qualified parking does not include—
(1)The value of parking provided to an employee that is excludable from gross income under section 132(a)(3)
(as a working condition fringe), or
(2)Reimbursement paid to an employee for parking costs that is excludable from gross income as an amount
treated as paid under an accountable plan. See §1.62-2.
(c) However, parking on or near property used by the employee for residential purposes is not qualified parking.
(d) Parking is provided by an employer if—
(1)The parking is on property that the employer owns or leases;
(2) The employer pays for the parking; or
(3) The employer reimburses the employee for parking expenses (see Q/A-16 of this section for rules relating to
cash reimbursements).

When this fringe benefit was first introduced, notice how any excess amount of qualified parking was included on the employee’s W2. The reason for the benefit was because the qualified parking amount was not included into the employee’s income. This fringe benefit has been on the books since 2002.

Media attention also suggests that if an exempt organization continues to pay for the parking of those who previously received this fringe benefit, the exempt organization would be confronted with unrelated business income. This is a true statement. If a non-profit organization chooses to pay any expense that is NOT associated with the advancement of the exempt purpose, those expenses are unrelated business income. Unrelated business income is taxed at the corporate tax rate.

The United States Supreme Court states “The taxation of business income not "substantially related" to the objectives of exempt organizations dates from the Revenue Act of 1950, Ch. 994, 64 Stat. 906 (1950 Act). The statute was enacted in response to perceived abuses of the tax laws by tax-exempt organizations that engaged in profit-making activities.” (FN: https://caselaw.findlaw.com/us-supreme- ... 5/834.html
United States Supreme Court U.S. v. AMERICAN COLLEGE OF PHYSICIANS, (1986) No. 84-1737)


To conclude, it is important to remember that the new law simply returns the tax code (concerning qualified parking) to where it was prior to 2002. Then, as now, all income is taxable income unless a specific exclusion is available. Qualified parking as a fringe benefit is no longer available. It returns to being taxable income to the employee if the employer pays for the parking. If the employer does pay for the parking, such payment is considered unrelated business income to an exempt organization.

Are your clients going to read that? and understand it? Mine wouldn't.
If their question is about parking in the church's parking lot, for which the church has no additional out of pocket cost (as opposed to paying for spaces in a commercial lot next door), then a one or two paragraph explanation/answer would be my solution.

There is a lot going on with charities, including Churches, Temples etc. in the area of fund raising. I am not an expert but I think it is a hear no evil, see no evil, speak no evil situation. Bingo games. Concession sales and admission fees to sports activities. Festivals. Book sales. Holiday tree sales. Bake sales. Flower sales. Social events. Advertising. Etc. Etc. Our local library has a stand that sells food etc. There would be such a backlash if UBI was enforced that Congress would have to act. In all of these cases the "profits" are used to support their charitable purpose. And I am ok with that.

Actually, a lot of benefits are getting stuck in a mess at the church level, parking is mentioned in this article.

https://www.politico.com/story/2018/06/ ... ees-670362

So, a rural church that has a parking lot that has been functional for years and does not rent spaces for employees to use should have no tax, correct?

For a few years I worked at a major corp that had an employee parking lot. Employees could park there for free of course. But obviously providing that parking lot cost the employer a lot of money. My next job was at a HQ in a downtown location. I had to pay for parking, no tax benefit in those years. After a few months I discovered that I lived on a major bus line and could take the bus for less than my monthly parking fee plus avoiding the expense of driving to work. Twenty years later there is a tax free benefit of a bus pass. Makes no sense to me. On the other hand, the benefit to bike riders was eliminated. Beam me up Scotty, there is no intelligent life down here.

Just thinking about the church parking fringe, with which I have not dealt before. Is my following reasoning on the mark?

Section 274 disallows the expense of a qualified transportation fringe (as defined in section 132(f), which includes parking).

But section 132(f) still allows the employee to exclude the parking fringe up to $175 per month.

Section 512(a)(7) now requires the qualified transportation fringe expense disallowed by section 274 to be added to UBTI, unless it is directly connected with an unrelated business regularly carried on by the organization.

If I'm close on the above, my first comment is that it seems a rather strange or artificial device to add to UBTI a disallowed expense that has nothing to do with UBTI. I guess Congress can do what it wants to do, but I don't see how that is UBTI.

My other comment is more of a question. Thinking of many churches, they would have the same parking lots whether or not they allowed emplyoees to use them, because they need the spaces for the far larger number of "customers" (congregants). So, could the fringe be a section 132(b) no-additional-cost fringe and, if so, does it avoid the section 512(a)(7) problem?

Probably not, but I thought I'd ask.

Thinking of many churches, they would have the same parking lots whether or not they allowed emplyoees to use them, because they need the spaces for the far larger number of "customers" (congregants). So, could the fringe be a section 132(b) no-additional-cost fringe and, if so, does it avoid the section 512(a)(7) problem?

Yes and Yes.

Then what's all the fuss about?

So what if a for a profit business validates and pays parking to a third party for customers? Still deductible, I assume. I still have some downtown professional services clients who pay for parking to third parties for employees. Those have to be charged back to the employee for 2018?

The for profit business paying for customer parking can deduct it. Paying for employee parking is not deductible, but is not taxable to the employee if within the 132 limit.
Nilodop

Then what's all the fuss about?

I don't know. I suppose there are some urban churches that pay for employee parking.

If I'm close on the above, my first comment is that it seems a rather strange or artificial device to add to UBTI a disallowed expense that has nothing to do with UBTI. I guess Congress can do what it wants to do, but I don't see how that is UBTI., my point being, among others, that it's not "income".

Also, section 512 (a)(7) begins

Unrelated business taxable income of an organization shall be increased by ...

, which to me means there has to be some UBTI to start with, which means there has be an unrelated business, as defined in section 513.

This is one of the many things where we need guidance (or I do, at least).

If a charity pays for parking for employees and UBTI is an issue, the easy work around might be to give the employees a bonus equal to what they pay for parking plus a gross up, all appearing on the employees W-2. But if the parking wass on a church owned lot, then the employee would be paying the charity then that would be UBTI would it not. Somehow I don't think that employee parking on an employer owned lot is going to be an issue. Most employees in the suburban areas, and some even in the center city, provide employee parking lots. And the cost of those lots is expensed I am sure.