How the IRS “Parking Lot” Tax Guidance affects your church
January 8, 2019 / By Conference Council on Finance & Administration
Some of you may have read articles or seen information about a provision in the Tax Cuts and Jobs Act of 2017 that seemed to assess an unrelated business income tax on employers, including churches, that provide parking to employees.
Within the past couple of weeks, the Internal Revenue Service released guidance, which, essentially showed the IRS adopting a special rule that should eliminate the possibility of a tax burden on the vast majority of churches and other taxexempt organizations.
Please note that churches that reserve parking spaces for employees need to stop the practice by March 31, 2019, to avoid the potential of being taxed for those spaces.
Even with this change, please be aware that some churches still may face a tax hit.
If a non-profit (or church) pays someone for parking for their employees, the non-profit will pay unrelated business income taxes on that expense. Therefore, churches providing mass transit passes or parking fees paid to third party vendors will report these expenses as unrelated business income on Form 990-T.
The guidance does seem to clear up the confusion surrounding the scenario of a church owning its own parking lot which is part of or adjacent to the church's worship facilities. The IRS provides an analysis to determine if most of the parking spaces are utilized for employees or for the "general public." Spaces at a church that are not used during the week are considered as for the "general public" unless they are designated for employee use only. If the majority of the spaces are utilized or available for the general public, then the church does not have unrelated business income.
On the other hand, if more than 50 percent of the parking spaces are used for employee parking, then the church must pay unrelated business tax in qualifying expenses. The qualifying expenses that create unrelated business income are expenses associated with the parking lot, including repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscaping 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). These qualifying expenses do not include depreciation.
If the church has parking spaces reserved for employees, the expenses related to those spaces always create unrelated business income.
There is a four-step analysis that the IRS has provided if a non-profit or church designates specific spots for its employees.
If a church does have designated spots and after the analysis, determines that they have unrelated business income, a Form 990-T would only have to be filed if the church’s total unrelated business income (including the parking amount) is greater than $1,000.
If you have any questions or wish to review the four-step analysis provided by the IRS, please contact the Finance staff of the Conference, or the Chair of the Conference Council on Finance & Administration.