IRS Provides Guidance on the Nondeductible Parking Expenses
The IRS released
to provide interim guidance for taxpayers to determine the amount of parking expenses that is nondeductible under Section 274(a)(4) of the Internal Revenue Code and for tax-exempt organizations to determine the amount of unrelated business taxable income (UBTI) under Section 512(a)(7) attributable to the nondeductible parking expenses.
Taxpayer Pays a Third Party for Employee Parking Spots
When an employer contracts with a third party for the use of the parking lot, the disallowance is generally calculated as the taxpayer’s total annual cost of employee parking paid to the third party. The disallowance is subject to UBTI for tax-exempt organizations.
If the amount paid to a third party exceeds the Section 132(f)(3) monthly limitation on exclusion, which is $260 per employee for 2018, that excess must be treated by the taxpayer as compensation and wages to the employee.
The amount that is treated as compensation is excluded from the taxpayer’s disallowance.
Taxpayer Owns or Leases All or a Portion of a Parking Facility
“Total parking expenses” include, but are not limited to, repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent or lease payments or a portion of a rent or lease payment (if not broken out separately). Depreciation is not considered a parking expense. Expenses paid for items located on or in the parking facility, including items related to property next to the parking facility, such as landscaping or lighting are also not included.
The IRS provided a four-step method to determine nondeductible parking expenses (and amounts to be treated as UBTI for tax exempt organizations).