On January 21, 2020, the IRS issued guidance detailing how nonprofits can apply for refunds of the repealed “parking tax.” Recall that in December 2017, the Tax Cuts and Jobs Act imposed an unpopular and widely criticized 21% tax on employee transportation benefit expenses incurred by nonprofits. The transportation tax, or “parking tax” as it came to be known, was retroactively repealed in December of 2019. The retroactive nature of the repeal creates an opportunity for nonprofits that paid the tax to seek refunds.
Refund Claim Procedure
Nonprofits can claim a refund of parking taxes paid by filing an amended Form 990-T and writing “Amended Return“ Section 512(a)(7) Repeal” in bold letters across the top and attaching a statement indicating the line numbers on the original return that were changed and the reason for each change (for example, stating repeal of Section 512(a)(7)).
Form 990-T was revised in 2018 to account for the new law, so completing the amended returns will vary depending on the year.
- 2017 Returns – Complete the amended Form 990 T the same as the original return, except that you should reduce the amount on Line 12 by the transportation fringe benefit expenses incurred. Complete the rest of the Form 990-T based on that revised entry. Include on the Other sub-line of line 45g (Other credits and payments) the amount of tax from line 48 (Tax due) of the original return (if any). If your changes result in your having made an overpayment, you should enter that amount on line 49 (Overpayment) line of the amended return, which you may request as a refund or credit on line 50.
- 2018 Returns – Enter(zero) on line 34 (Amounts paid for disallowed fringes). Complete the rest of the Form 990-T based on that revised entry. Include on the Other sub-line of line 50g (Other credits, adjustments, and payments) the amount of tax from line 53 (Tax due) of the original return (if any). If your changes result in your having made an overpayment, you should enter that amount on line 54 (Overpayment) line of the amended return, which you may request as a refund or credit on line 55.
- 2019 Estimated Taxes. Nonprofits that have paid estimated taxes in 2019 to cover the parking tax will likely have to wait until they file their 2019 990-T to claim a refund of the estimated tax paid.
Time is of the Essence in Refund Claims
Refund claims are subject to statutes of limitations; therefore, nonprofits that paid the parking tax should not delay in filing their refund claims. Typically, nonprofits cannot claim a refund after the later of
(i) three years from the time the filing of the original Form 990 T; or
(ii) two years from the time the tax was paid.
State Refund Claims
Nonprofits that paid state income taxes due to the parking tax can also file amended state tax returns to claim refunds of state taxes.
If you need help determining whether your organization is eligible for a parking tax refund, reach out to your tax advisor or the Caritas Law Group team.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.