With the passage of the Tax Cuts and Jobs Act (TCJA) in 2017 there were some changes that may require your organization to file Form 990-T, possibly for the first time.
As we mentioned in our March 2018 newsletter, if your nonprofit offers employees qualified transportation fringe benefits such as bus passes (ORCA cards), parking, and/or bicycle commuting reimbursements, and those amounts are not included in employee’s wages for 2018, your organization may need to pay tax on the amount of those benefits by reporting them on Form 990-T.
The IRS has offered limited guidance regarding the calculation of nondeductible parking expenses in IRS Notice 2018-99 and has offered penalty relief for non-profits who have not made any estimated tax payments for 2018 relating to tax generated by the transportation benefits in IRS Notice 2018-100.
The guidance offered in IRS Notice 2018-99 includes a special rule that allows organizations to retroactively change their parking arrangements to reduce or eliminate the number of parking spots reserved for employees. Organizations have until March 31, 2019 to implement this change and have it apply for the 2018 tax period. By reducing or eliminating the number of reserved parking spots for employees, an organization may reduce their tax due or eliminate the need to file a Form 990-T for qualified transportation fringe benefits.
Other reasons your organization may need to file a 990-T are if there is rental income for a building that has a mortgage or if there is an activity that is 1) considered a trade or business that is 2) regularly carried on and which 3) is not substantially related to your organization’s mission. An activity has to meet all three of these requirements to be considered Unrelated Business Taxable Income (UBTI) and be reported on Form 990-T. There are a number of modifications, exclusions, and exceptions to the unrelated business income rules that will influence the amount of UBTI. For more information about UBTI and Form 990-T please see our booklet “What Not-for-Profits Need to Know About Tax Compliance”.
If you are unsure of whether or not you have an activity that should be reported on Form 990-T or if you have questions about transportation fringe benefits please contact one of our tax professionals at Jacobson Jarvis and we will be glad to help.