Senate Bills Would Repeal Fringe Benefits Provision in New Tax Law

The introduction of two bills last week shows that lawmakers are increasingly aware of the need to fix a provision in the new tax law that requires tax-exempt organizations to pay taxes on employee parking and transportation benefits.

Last week, Senators Ted Cruz (R-TX) and James Lankford (R-OK) introduced separate bills that would repeal a provision in the new tax law requiring associations, charities, churches, and other tax-exempt organizations to pay unrelated business income tax (UBIT) on employee fringe benefits, including parking and transportation.

“Tax reform was designed to simplify tax filing, not make it more complicated or burdensome,” Lankford said in a press release. “But a glitch in last year’s tax reform bill would become a huge burden to churches, charities, and nonprofit organizations. Most churches and nonprofits in Oklahoma, especially in rural locations, are not equipped to handle major tax code changes … I look forward to joining my colleagues to find ways to address this unfortunate situation.”

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.

ASAE has been working with the UBIT Coalition to request that the Treasury Department delay this provision, while also pursuing a legislative fix by Congress. The lack of guidance from Treasury has created a lot of confusion and conflicting opinions about how nonprofit organizations should go about calculating their tax liability to comply with the requirement. Many organizations are already making estimated payments to the IRS on this expense—absent any guidance—which further supports ASAE’s request for a delay in implementing this requirement.

The UBIT Coalition has also pointed out that some cities, including Washington, DC, New York, and San Francisco, have mandated that employers provide pre-tax mass transit benefits, so employers in those cities do not have the option of changing those benefits to avoid being taxed. ASAE has suggested that special consideration be given for employers in localities that mandate transportation benefits.

Interestingly, a question about the fringe benefits provision came up at the White House press briefing on August 1, and White House Press Secretary Sarah Huckabee Sanders suggested that the administration may support some corrective action. “Certainly something that we’re looking into, but I don’t have anything specific for you on that front,” Sanders said.

(izanbar/iStock/Getty Images Plus)

Chris Vest, CAE

By Chris Vest, CAE


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