REGULATIONS EXPLAIN DISALLOWED BENEFITS

Regulations explain disallowed benefits. The IRS issued proposed regulations implementing changes to Sec. 274 that disallow a deduction for the expense of any Sec. 132 (f) qualified transportation fringe (QYF) provided to an employee, effective for amounts paid or incurred after Dec. 31, 2017. The changes were enacted in the law known at the Tax Cuts and Jobs Act, P.L. 115-97. The proposed regulations provide guidance to determine what QTF expenses are nondeductible and how to apply certain exceptions under Sec. 274(e) that may allow QTF expenses to be deductible. Regulations explain disallowed benefits.

In Notice 2018-99, the IRS provided interim rules regarding how to determine the amount of parking expenses that is nondeductible or treated as unrelated business taxable income (UBTI) (With the repeal of Sec. 512(a)(7), the UBTI rules are no longer relevant.) The notice addressed situations in which the employer pays a third party to provide parking for its employees and where the employer owns or leases a parking facility for employees to park in and provided a four step method for calculating the nondeductible portion of parking expenses. The IRS says it received approximately 500 comments on the notice.

Under the proposed regulations, as in Notice 2018-99, if the taxpayer pays a third party for its employee’s QTF, the Sec. 274(a)(4) disallowance is generally calculated as the taxpayer’s total annual cost of the QTF paid to the third party. With regard to QTF parking expenses, the proposed regulations provide that if the taxpayer owns or leases all or a portion of one or more parking facilities, the Sec. 274(a0(4) disallowance may be calculated using a general rule or any one of three simplified methods.   The general rule allows taxpayers to calculate the disallowance based on a reasonable interpretation of Sec. 274 (a)(4), however, taxpayers must use the expenses paid or incurred in providing the QTF instead of its value to an employee, must allocate parking expenses to reserved employee spaces, and must properly apply an exception for parking made available to the general public. Its important to get these expenses and deductions right, so as not to have tax debts and need Tax Resolution.