DISALLOWED DEDUCTIONS FOR QUALIFIED PARKING: Management Accountants Can Use Their Expertise to Help Address the Complex Issues Raised by the New Tax Law for the Disallowance of an Employer's Expense Deduction for Qualified Parking

By Roberts, David J. | Strategic Finance, February 2019 | Go to article overview

DISALLOWED DEDUCTIONS FOR QUALIFIED PARKING: Management Accountants Can Use Their Expertise to Help Address the Complex Issues Raised by the New Tax Law for the Disallowance of an Employer's Expense Deduction for Qualified Parking


Roberts, David J., Strategic Finance


THE TAX CUTS AND JOBS ACT added new IRC [section]274(a) (4), which generally disallows the deduction for the expense of any "qualified transportation fringe" (QTF) provided to an employee of the taxpayer. Congress also tried to provide a similar result for tax-exempt organizations, where the disallowed deduction might otherwise not matter. New IRC [section]512(a) (7) generally provides that a taxexempt organization's unrelated business taxable income (UBTI) is increased by the amount of the QTF expense that's disallowed under IRC [section]274.

QTFs are excludible by employees (subject to detailed restrictions and dollar limitations) and have generally been deductible by the employer. This new disallowance raises many issues, especially when it comes to "qualified parking."

How do we determine the employer's disallowed expense for qualified parking? In December 2018, the IRS issued Notice 2018-99 (2018-52, IRB 1067), which taxpayers may rely on until further guidance is issued. It indicates that "Section 274(a)(4) disallows a deduction for expenses incurred for QTFs regardless of whether the benefit is provided by the employer in-kind, through a bona fide cash reimbursement arrangement, or through a compensation reduction agreement."

This may be easy enough if the employer simply pays a fee to a third-party garage. The disallowed expense is generally the amount paid. But to the extent the payment for an employee's parking exceeds the monthly limit on the employee's exclusion, which is $260 for 2018 and $265 for 2019, the excess is includible by the employee as wages and is not disallowed to the employer.

What about the expense if the employer wholly or partly owns or leases the parking facility and employees, customers, and other nonemployees might park in it? According to Notice 2018-99, the disallowance may be calculated using any reasonable method. The method must be based on the expense, not the value. And if the method fails to allocate expenses to reserved employee spots, it isn't reasonable.

According to the notice, "a 'parking facility' includes indoor and outdoor garages and other structures, as well as parking lots and other areas, where employees may park on or near the business premises of the employer or on or near a location from which the employee commutes to work. The term does not include any parking on or near property used by the employee for residential purposes."

The notice also indicates that "total parking expenses" include but aren't limited to "repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent or lease payments or a portion of a rent or lease payment (if not broken out separately)." But there's no guidance on how to allocate service department costs and other expenses partly applicable to the parking facility. Management accountants will see all kinds of opportunities in determining those allocations, which can make a very big difference in the disallowed amount.

Oddly, and much to the taxpayer's favor, the notice concludes that depreciation isn't a parking expense for this purpose. Also favorable to the taxpayer, the notice says, "expenses paid for items not located on or in the parking facility, including items related to property next to the parking facility, such as landscaping or lighting, also are not included. …

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DISALLOWED DEDUCTIONS FOR QUALIFIED PARKING: Management Accountants Can Use Their Expertise to Help Address the Complex Issues Raised by the New Tax Law for the Disallowance of an Employer's Expense Deduction for Qualified Parking
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