Unrelated Business Income Tax and Transportation Benefit Tax Regulations

The nonprofit sector is awaiting the guidance promised by the US Treasury Department and the IRS on computation of unrelated business taxable income for separate trades or businesses (UBIT) under new section 512(a)(6). Although some tentative guidance was released as a Request for Comments on August 21 (comments are due on December 3),  the 21% new tax on transportation benefits is still in regulatory limbo. The Treasury/IRS Notice makes only passing reference to new 21% tax on transportation benefits, such as transit passes and parking, found in Section 512(a)(7). The government has given no indication if or when it will delay implementation of the controversial new tax (effective January 1, 2018) or provide guidance to the hundreds of thousands of nonprofits across the country affected by the tax change.

Nonprofits concerned with the impact of the new UBIT on separate businesses and transportation benefits are encouraged to take action by providing public comment to the IRS and insisting that Treasury and the IRS delay implementation of the new UBIT subsections until one year after Final Rules are promulgated. "It is incumbent upon the federal government to delay implementation until after formal regulations are issued so that the many charitable nonprofits, houses of worship, and foundations that are affected can know what the ambiguous new provisions actually tax so they can compute what their tax liability is,” said Jennifer Chandler, Vice President of the National Council of Nonprofits. "Right now, the provisions that impose an income tax on expenses relating to employees’ transportation benefits and that direct nonprofits to pay tax on each “separate trade or business” are so vague that compliance is impossible. Meanwhile the tax clock is running, and nonprofits are at risk of penalties for late filing. Most distressing is that it appears these provisions will impose significant costs and record-keeping burdens on nonprofits, making it harder for nonprofits to address their charitable missions and more difficult to recruit and retain employees.”

For a more detailed look at the concerns regarding the impact of the UBIT and transportation benefit provisions of the new tax law with proper regulatory guidance, see this letter from the National Council requesting a delay in implementation.

Post date: October 19, 2018
Topics: National Legislative Updates

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