Repealed: UBIT on Transportation Fringe Benefits

by | Jan 9, 2020 | Tax and Accounting Desk

A much-hated tax on not-for-profit organizations is on the way out. At the end of 2019, Congress repealed a provision of 2017’s Tax Cuts and Jobs Act (TCJA), which triggered the unrelated business income tax (UBIT) of 21% on not-for-profit employers that provide employees with transportation fringe benefits.

a red monorail train speeding overhead people walking through a transportation terminal; image used for UBIT transportation fringe benefits blog post

Unequipped to handle the additional administrative burdens and compliance costs, thousands of not-for-profits had complained — and legislators apparently listened.

Same Benefits, New Costs
At issue is the TCJA provision saying that not-for-profits must count disallowed deduction amounts paid for transportation fringe benefits such as transit passes and parking in their UBIT calculations. UBIT applies to business income that isn’t related to the organization’s tax-exempt function. Thus, simply by continuing to provide some of the same transportation benefits they’ve always provided employees, not-for-profits were liable for additional tax.

For example, employers were forced to assign a value to parking spaces provided to employees. Such activities were time-consuming and burdensome, and the additional costs forced not-for-profits to divert funds from pursuing their missions. Not-for-profit coalition Independent Sector estimates that the transportation tax and related administrative costs set back not-for-profits by an average $12,000.

Fortunately, the repeal of the UBIT provision will be retroactive. Although the details haven’t yet been hammered out, not-for-profits that paid the tax on applicable transportation benefits in 2018 and 2019 are expected to get their money back.

Other Developments
Repealing the UBIT on certain transportation benefits isn’t the only recent legislation of interest to not-for-profits. Last month, Congress also streamlined the foundation excise tax. The current two-tiered tax that many foundations protested will be replaced with a 1.39% revenue-neutral tax.

Congress is likely to address other not-for-profit demands — for example, for the introduction of a universal charitable deduction — in future sessions. Contact your trusted advisor for help to stay current with the latest tax developments affecting not-for-profits.


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