AICPA Comments on IRS Rules for Qualified Transportation Fringe Benefits

May 15, 2019

  • AICPA’s comments include recommendations on the changes to section 274(a)(4) and the enactment of section 512(a)(7) under the Tax Cuts and Jobs Act.
  • The issues relate to various lease agreements, parking provided to resident employees of a rental building, multi-use parking facilities, employee payments for parking and the use of a professional employer organization. 

Washington, D.C. (May 15, 2019) – The American Institute of CPAs (AICPA) has submitted comments to the Internal Revenue Service (IRS) about guidance in Notice 2018-99 related to the changes made to qualified transportation fringe benefits under the Tax Cuts and Jobs Act (TCJA). 

The AICPA explained in its letter that the TCJA amended Internal Revenue Code section 274(a)(4) so that no deduction is allowed for the expenses of any qualified transportation fringe benefit (QTF) provided by a taxpayer to an employee.  Under section 512(a)(7) as added by the TCJA, the unrelated business taxable income (UBTI) of tax-exempt organizations is increased by any amount paid or incurred by the organization for any QTF that is nondeductible under section 274(a)(4).  However, the TCJA did not address how taxpayers should determine the amount of any QTF expense.

The AICPA made the following recommendations with numerous illustrative examples that include, but are not limited to, the following issues related to the changes to section 274(a)(4) and the enactment of section 512(a)(7):

  • Recommended that for purposes of Step 1 of the four-step safe harbor calculation provided for in the Notice, and determining whether any method is reasonable, the expense treated as nondeductible under section 274(a)(4) or UBTI under section 512(a)(7) is limited to the amount of the expense associated with employee reserved spots that are used by employees on a typical business day;
  • Recommended that future guidance clarify that there is a distinction between an employer paying a third party for individual parking spots assigned to specified employees and an employer paying a third party for a group of spots (including a portion of a lot or garage), that are not assigned to specific employees;
  • Recommended that where no parking expense allocation is specifically provided that the IRS and Treasury methods or examples that are described in the letter in the proposed regulations for organizations to use in determining their parking expense related to lease agreement arrangements;
  • Recommended that the proposed regulations provide that parking meets the general public criteria of section 274(e)(7) in the following situations:
    • The taxpayer leases space in a multi-tenant building that includes access to a parking facility for all tenants;
    • The number of parking spots available to the taxpayer is not specifically identified in the lease; and
    • The taxpayer’s employees use less than 50% of the parking spots available to all tenants in the facility.
  • Recommended that with a multi-tenant scenario, the term “general public” specifically includes anyone who is not the taxpayer’s employee, partner or independent contractor, such as the employee, partner or independent contractor of other unrelated tenants in the building;
  • Recommended that the proposed regulations clarify that expenses associated with parking used by an employee for residential purposes is not subject to sections 274(a)(4) and 512(a)(7);
  • Recommended that the proposed regulations allow organizations to use a “snapshot” method to determine average actual or estimated usage of their parking spots based on a specified typical timeframe in a multi-use parking facility scenario; and
  • Recommended that the proposed regulations provide examples which take into account employee payment for parking on a pre-tax and after-tax basis.