September 17, 2020 - Douglas Myser

Disallowed transportation part two. The IRS has issued regulations implementing changes to Section 274 that disallow a deduction for QTF or Qualified Transportation Fringe. The Proposed regulations also include a special rule for certain mixed parking expenses to reduce administrative burdens for taxpayers and simplify calculations. While Notice 2018-99 addressed only expenses related to parking QTFs, the proposed regulations include rules addressing the disallowance of deductions for expenses for transportation in a commuter highway vehicle and transit pass QTF's. New Proposed Regulations Sec. 1.274-14 addresses transportation and commuting expenses paid or incurred by an employer. Sec. 274(l), added by the TCJA, disallows deductions for any expense incurred to provide transportation, or any payment or reimbursement for transportation, to an employee of the taxpayer in connection with travel between the employee's residence and place of employment, except as necessary for ensuring the safety of the employee. The proposed regulations define "residence" and safety of the employee" for these purposes. Disallowed transportation part two.

The IRS says the Sec. 274(e)(7) exception for expenses for goods, services, and facilities made available by the taxpayer to the general public and the Sec. 274 (e)(8) exception for goods and services that are sold by the taxpayer in a bona fide transaction for adequate and full consideration also apply to QTF expenses. However, the IRS has determined that the Sec. 274 (e) exceptions apply only to amounts that would be disallowed under Sec. 274(a) and not to those disallowed under Sec. 274(l).

The Tax Cuts and Jobs Act also added Sec. 512(a)(7), which provides that a tax-exempt organization's unrelated business taxable income (UBTI) is increased by the amount of the QTF expense for which a deduction is not allowable under Sec. 274, effective for amounts paid or incurred after Dec. 31, 2017. Sec. 512 (a)(7) was repealed on Dec. 20, 2019, retroactive to the original date of enactment of the TCJA, by the Taxpayer Certainty and Disaster Tax Relief Act of 2019, enacted as part of the Further Consolidated Appropriations Act, 2020, PL, 116-94.

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