The Taxpayer Certainty and Disaster Tax Relief Act of 2019, a piece of legislation of great interest to tax-exempt organizations, was signed by the president on Dec. 20, 2019. The primary purpose of the Act is to extend the effective date of certain recurring tax breaks. However, it also contains two important exempt organization provisions:
“Parking tax” repeal
The Act repeals the addition to unrelated business income for qualified transportation fringes, (un)popularly known as the “parking tax.” This repeal is retroactive to the date of its original enactment, as if the original law never existed. This will allow organizations that have previously filed Forms 990-T, including this addition to income, and paid the resulting tax to file amended tax returns and claim refunds of those taxes.
In order to obtain a refund of the unrelated business income tax (UBIT) associated with qualified transportation fringes, exempt organizations will need to file amended 990-Ts using prescribed language and noting the overpayment on specified lines of the return. As stated on the IRS website, if the return is being amended solely to claim a refund, credit, or adjustment due to the repeal, “Amended Return-Section 512(a)(7) Repeal” should be written on the top of Form 990-T, and a statement should be attached indicating the lines that were changed and the reason for the change (i.e., “repeal of Section 512(a)(7)). The IRS has more information available here.
Other items to note:
- State ramifications of the repeal aren’t yet known. Treatment will vary depending on the conformity of each state to the federal tax code.
- Tax-exempt organizations that have paid estimated tax for UBIT created by section 512(a)(7) may be able to claim refunds of the estimates paid by filing Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, prior to the earlier of the 15th day of the fourth month after the end of their tax year, or the date on which their tax return is filed. Please note that the fourth month is one month earlier than the normal due date for the Form 990-T.
- The statute of limitations for filing refund claims as provided in Section 6511 of the Internal Revenue Code apply.
- Guidance hasn’t been provided on the treatment of net operating losses that were used to offset UBIT created by Section 512(a)(7).
Private foundation investment excise tax
The Act also includes a provision to subject private foundations to a flat 1.39% tax on net investment income, rather than the previous 2% tax that could have been reduced to 1%if certain distribution requirements were met. This is a simplification that has been recommended by private foundations for many years.
This change will take effect for tax years beginning after Dec. 20, 2019. Practically speaking, it will first impact calendar year 2020 tax returns. Fiscal year taxpayers may have planning opportunities to time the application of the previously available 1% tax with the new 1.39% tax.
For specific questions on how the Taxpayer Certainty and Disaster Tax Relief Act of 2019 will affect your organization, please reach out to your Plante Moran tax professional.