In December 2018, the Internal Revenue Service released Notice 2018-99 which detailed how the IRS planned on implementing the part of the Tax Cuts and Jobs Act relating to “qualified parking” benefits to employees. As the rules are currently written, there will be many parking lot expenses that may not be deductible for 2018.
The qualified parking non-deductible expenses are based on the number of parking spots reserved or used predominately by employees compared to the amount used primarily by customers, vendors or the general public. Essentially the more parking spots that are used by your employees, the larger amount of parking lot expenses that may be not deductible.
Based on the Notice, the impact to retailers will be minimal, while the impact to commercial and manufacturers could be great. This is because most of the parking lots in a retail business are used by the customers of the business, while in a manufacturing setting, most of the parking is used by employees.
Although the Notice came out in December 2018, the effective date is for tax years beginning after December 31, 2017!
Under this notice, the following expenses could be treated as not-deductible:
- repairs
- maintenance
- utility costs
- insurance
- property taxes
- interest
- snow and ice removal
- leaf removal
- trash removal
- cleaning
- landscape costs
- security
- rent and lease payment
One noted exception is for depreciation which is still deductible under the Notice.
The Notice also indicates that taxpayers may use any reasonable method to calculate the non-deductible portion as long as it is based on expenses. The Notice specifically says that it is not reasonable to use a fair market value calculation.
In the Notice, the IRS provided a reasonable way to perform the calculation:
- Determine the amount of the reserved employee spots.
- Determine the primary use of the remaining spots using a greater than 50% test during a normal business day.
- Calculate the deductible expense based on the portion of the general public spots.
The IRS has provided a retroactive change for the reserved employee parking spots. If an employer removes any reserved signage prior to March 31, 2019, the IRS will treat those as non-reserved spots retroactively to January 1, 2018.
It should also be noted that if a taxpayer leased parking spots from a third party for exclusive use by its employees, the entire amount paid for those spots is not deductible.
For non-profits, the non-deductible portion is treated as unrelated business taxable income (UBTI) and is reported on a Form 990-T.
We will continue to watch this issue and provide updates as they become available. Although the Treasury Department and the IRS have requested comments, unless the Notice is changed, taxpayers should rely on the guidance.
If you have any questions about how this Notice will impact your organization, please contact your local Hawkins Ash CPAs representative.
