Provision in 2018 tax bill could affect parking perks, other fringe benefits of church employees

Provision in 2018 tax bill could affect parking perks, other fringe benefits of church employees

A largely overlooked provision in a massive tax bill signed into law six months ago requires churches and other non-profits to begin paying a 21 percent tax on fringe benefits such as employee parking, according to a story broken this week by Politico.

More than 1,200 churches and other faith-based organizations have signed a position statement circulated by the Evangelical Council for Financial Accountability calling for repeal of changes to the Internal Revenue Service Code requiring tax-exempt non-profits to file federal income tax returns and pay unrelated business income tax on the cost of parking for employees.

The change occurred in December when Congress rushed to pass a 400-page Tax Cuts and Job Act drafted largely behind closed doors with some last-minute changes handwritten on earlier versions.

Voted largely along Republican and Democratic party lines and signed into law Dec. 22 by President Trump, the legislation changed the income level of individual tax brackets, lowered tax rates and cut corporate taxes in a GOP-led effort to boost the economy. Democrats said it will increase income inequality and raise the government’s debt.

Late changes added to gain enough votes for passage included new language related to unrelated business taxable income for tax-exempt organizations, such as churches.

Unrelated business income is money earned from business not substantially related to performance of the organization’s tax-exempt functions. The new language raises the tax on such income by counting expenses for qualified transportation fringe benefits for workers, including free parking.

Tax experts say churches can either pay taxes on the value of employee parking or pass the burden to employees by making it a part of their taxable income. Treating it as unrelated business income could force some organizations for the first time to file tax documents they have not been required to submit in the past.

The legislative intent, according to Politico, is to level the playing field between non-profit and for-profit businesses, which are no longer able to deduct the cost of certain parking benefits provided to their employees. Michael Batts, chairman of the Evangelical Council for Financial Accountability board of directors, described the idea as “absurd.”

“The whole idea of tax exemption for nonprofit organizations that are doing charitable, religious and educational work is for them not to be on the same playing field as for-profit businesses when it comes to taxes, in order to incentivize the good work they do to make our society better,” said Batts, managing partner of an accounting firm that specializes in religious nonprofits.

The ECFA position statement called the idea that tax-exempt employers should be taxed on parking they provide to employees “highly inappropriate.”

“This new tax was purportedly added to the law to put tax-exempt employers on the same footing as taxable employers with respect to employer‐provided parking,” the statement said.  “This premise is flawed at its core. The very purpose of tax exemption for nonprofit organizations is not to have their charitable, religious and educational activities on the same  footing as taxable businesses because of their important work and the inherent challenges associated with raising money to support such work.”

“Furthermore, the federal income tax on unrelated business income is intended to apply to  income generated from unrelated commercial activities conducted by tax‐exempt organizations,” the EFCA statement proclaimed.

“Providing parking to employees does not constitute generating income from an unrelated commercial activity and there is no sound policy basis for applying a tax intended for commercial activity to the essential element of parking by employees of tax‐exempt organizations,” the EFCA said.

The National Council of Nonprofits – the nation’s largest network of charitable organizations — called on the IRS and Treasury Secretary Steven Mnuchin’s office to delay implementation of the tax on fringe benefits.

“In the weeks since that statement was delivered to your offices, hundreds and perhaps thousands of charitable organizations, houses of worship, and foundations have raised additional questions and submitted substantive statements about the very pressing need for guidance before they can comply with the new requirements,” said the June 21 letter signed by two council vice presidents.

Specifically, the group asked government officials to postpone the change until a year after final rules are promulgated to give the non-profit sector time and guidance to fully understand its obligations. (RNS)