October 26, 2018

 

The Honorable Orrin Hatch, Chairman

U.S. Senate Committee on Finance

219 Dirksen Senate Office Building

Washington, D.C. 20510

 

The Honorable Ron Wyden, Ranking Member

U.S. Senate Committee on Finance

219 Dirksen Senate Office Building

Washington, D.C. 20510

 

The Honorable Kevin Brady, Chairman

U.S. House Committee on Ways & Means

1102 Longworth House Office Building

Washington, D.C. 20515

 

The Honorable Richard Neal, Ranking Member

U.S. House Committee on Ways & Means

1102 Longworth House Office Building

Washington, D.C. 20515

 

Re: Unrelated Business Income Tax on Qualified Transportation Fringe Benefits in Section 512(a)(7)

 

Dear Chairman Hatch, Ranking Member Wyden, Chairman Brady, and Ranking Member Neal:

Until this year, tax-exempt organizations that provided transportation and parking benefits to their employees were not subject to tax on those benefits, whether provided directly or indirectly.  The Tax Cuts and Jobs Act (TCJA), however, brought about a sea change for these tax-exempt organizations, imposing the 21 percent unrelated business income tax (UBIT) on qualified transportation benefits.  Not only do these organizations now have to pay a hefty tax on these benefits but they must value them as well, which can be difficult when there is no clearly defined valuation method.

As for fairness, taxable corporations also must pay tax on these employee benefits, however in the TCJA, corporations received an income tax rate reduction while tax-exempts received no similar tax relief.  To be clear, subjecting the tax-exempt sector to UBIT on transportation and parking benefits diverts funds that would otherwise go toward valuable mission services.  While full repeal is preferable, the undersigned tax-exempt organizations request that you strongly consider the following:

  1. A delay in the effective date of this provision to provide organizations time to establish new accounting systems to value and track such benefits, which have never been subject to tax before;
  2. A carve-out for tax-exempts required by law to provide parking and/or other qualified transportation benefits to employees; and
  3. For lawmakers to encourage the Treasury Department to issue guidance on valuing these benefits, which in many cases have no readily ascertainable value.

We request a delay in the effective date for at least a year, and further until Treasury and the IRS have issued uidance explaining how to implement this new tax.  This new law is forcing many tax-exempt employers, including churches and other houses of worship, to file federal Form 990-T for the first time regardless of whether they engage in any unrelated business activity.  Many organizations have missed filing deadlines or, not knowing how to comply, have misfiled Form 990-T.  A delay of this provision would hold these tax-exempts harmless until they have clear instructions on how to file.

Additionally, many localities around the country mandate employers over a certain size provide transportation fringe benefits, and some states have their own UBIT mirroring the federal tax, thus compounding the financial hit even further.  We estimate approximately 2 million employees work for tax-exempts in localities mandating transportation fringe benefits, which spreads across 250,000 organizations.  A forthcoming study commissioned by Independent Sector should provide a more robust estimate of how costly the new UBIT provisions will be for tax-exempt organizations, focusing in these areas.

Thank you for your consideration, and we look forward to working with you to ensure the continued vitality of America’s tax-exempt sector.

CC:

The Honorable Mitch McConnell, Leader

U.S. Senate

317 Russell Senate Office Building

Washington, D.C. 20510

 

The Honorable Paul Ryan, Speaker

U.S.  House of Representatives

1233 Longworth House Office Building

Washington, D.C. 20515