New guidance says that UBIT arising from parking and transportation benefits is not subject to the “silo” rule. While this won’t help many 501(c)(3) groups that are paying UBIT for the first time under the new tax law, it does provide some relief for associations with multiple unrelated business income activities.
On August 21, the IRS issued interim guidance on the provision in the new tax law that requires separate computation of unrelated business income tax (UBIT) for tax-exempt organizations with more than one unrelated trade or business.
ASAE and the UBIT Coalition have been asking for guidance from Treasury for months on this provision, along with another provision in the tax law that requires tax-exempt organizations to pay taxes on employee parking and transportation benefits.
Fortunately, the IRS guidance that came out this week, Notice 2018-67 [PDF], provides that UBIT arising from tax-exempt organizations’ parking and transportation benefits is not subject to the “silo” rule. Effectively, the guidance allows organizations engaged in more than one unrelated trade or business to net their parking and transportation expenses against any other UBIT income. This won’t help many charities, churches, and other 501(c)(3) groups that are paying UBIT for the first time under the new law, but it does provide some relief for associations with multiple unrelated business income activities.
While the new guidance is helpful for tax-exempt organizations that are trying to calculate their tax liability in compliance with the new tax law provisions, ASAE and the UBIT Coalition will continue to urge Treasury to delay these provisions and separately pursue a legislative fix by Congress.
Lawmakers are increasingly aware of the need to address the fringe benefits provision. Sens. Ted Cruz (R-TX) and James Lankford (R-OK) introduced separate bills earlier this month that would repeal the tax on fringe benefits. Lankford’s bill mirrors a bill introduced in the House by Rep. Mark Walker (R-NC). Lankford and Walker serve as co-chairs of the Congressional Prayer Caucus. In addition to the Walker bill, Reps. James Clyburn (D-SC) and Mike Conaway (R-TX) have both released bills repealing the fringe benefits provision.