Group Seeks Delayed Implementation of Nonprofit Parking Tax

August 6, 2018

The Honorable Steven T. Mnuchin
Secretary of the Treasury
U.S. Department of the Treasury
1500 Pennsylvania Avenue N.W.
Washington, D.C. 20500

Re: Section 13703 of Public Law 115-97 (the “parking lot” tax)

Dear Secretary Mnuchin:

The Office of General Counsel of the United States Conference of Catholic Bishops (USCCB) is submitting this letter to call to your attention the threat of a burdensome, intrusive, harmful, and widespread impact on the religious community posed by section 512(a)(7) of the Internal Revenue Code. The USCCB holds a group exemption issued by the IRS in 1946 that includes approximately 40,000 churches, religious orders, schools, soup kitchens, nursing homes, low-income housing providers, and many other religious, charitable, and educational ministries.

The new provision was added by Section 13703 of Public Law 115-97, introduced as the “Tax Cuts and Jobs Act” and signed by President Trump on December 22, 2017 (the “Act”), and directed that you “shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations or other guidance.” We write to ask you to exercise your authority to mitigate and delay to the fullest extent possible the burdensome and harmful (and we think unintended) consequences of this provision.

Section 512(a)(7) treats as an increase to an organization's unrelated business taxable income (“UBTI”) “any amount for which a deduction is not allowable under [Chapter 1 of the Internal Revenue Code] by reason of section 274 and which is paid or incurred by such organization for any qualified transportation fringe (as defined in section 132(f)), any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)), or any on-premises athletic facility (as defined in section 132(j)(4)(B)).” Section 274 was amended by the Act to provide that “No deduction shall be allowed under this chapter for the expense of any qualified transportation fringe (as defined in section 132(f)) provided to an employee of the taxpayer.”

In plain terms, these provisions mean that thousands of churches and other charitable organizations will have to file income tax returns with the federal government that they have never before been required to file, which are open to public inspection, and to pay a corporate income tax on the cost of providing otherwise nontaxable (under section 132) transportation and parking benefits to ministers and other employees. The potential for unintended non-compliance or uneven compliance with this new tax is significant.

Our understanding is that Treasury and the IRS will interpret section 512(a)(7) to subject otherwise tax-exempt organizations to the unrelated business income tax (“UBIT”) to the extent they subsidize transit passes and parking, or simply allow (including providing under mandate of local law, see below) their employees to use pre-tax funds from their own salaries to pay for those benefits pursuant to compensation reduction agreements. See 2018 IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits, indicating that taxable employers may no longer deduct amounts deemed provided by an employer through a compensation reduction agreement. Neither section 274 nor section 512(a)(7) says how or whether the result should be different if the employer is located in a jurisdiction, such as the District of Columbia or the City of New York, which requires employers to provide these now nondeductible or taxable benefits.

The most worrisome aspect of section 512(a)(7), however, is the provision that some are referring to as the “parking lot tax,” which would impose UBIT on amounts paid or incurred for “any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)).” “Qualified parking” is defined in section 132 to mean “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 by transportation described in [section 132(f)(5)(A)] in a commuter highway vehicle, or by carpool.” If, as many have begun to fear, UBIT is going to be assessed against tens of thousands of churches that permit their ministers and employees to park in lots that are constructed primarily for the purpose of enabling congregants to gather for worship, the devastating impact cannot be understated. The burden will not be limited to the cost of the tax, which will be great; in many cases, the cost of recordkeeping, preparation, and filing of a Form 990-T (especially for organizations that do not already incur similar costs for preparation and filing of a Form 990) will exceed the tax itself.

We urge Treasury to issue a notice delaying implementation and enforcement of section 512(a)(7) until final regulations can be issued that provide clear guidance on how religious, charitable, and educational tax-exempt organizations can identify the benefits to which the tax applies and how to compute the UBTI “increase” and apportion expenses. A delay in implementation will have the added benefit of giving Congress time to repeal section 512(a)(7) entirely, for which there is growing momentum and universal approbation from the tax-exempt sector.

Respectfully submitted,

Anthony R. Picarello
Associate General Secretary & General Counsel

Matthew Giuliano
Assistant General Counsel

Office of the General Counsel
Washington, DC