Repeal of Tax on Tax Exempt Organizations for Certain Fringe Benefits

Kelley Drye Client Advisory

We are writing to inform you of a recently enacted law affecting the tax treatment of certain fringe benefits provided to employees of tax exempt organizations.

Congress has retroactively repealed a rule that originally went into effect January 1, 2018 and which required tax exempt organizations to recognize unrelated business taxable income (UBTI) on amounts paid or incurred toward employees’ qualified transportation benefits, qualified parking benefits, and on-premises athletic facilities. Tax exempt organizations were subject to a 21% excise tax on the resulting UBTI.

Because this rule has been repealed retroactively, it appears that any tax exempt organization that paid excise taxes based on the rule should be entitled to a refund. Subject to the IRS releasing additional guidance, in order to request a refund, a tax exempt organization will need to file an amended Form 990-T for the applicable periods. In addition, because some states assess excise taxes based the amount of UBTI recognized under federal tax law, it may also be appropriate to request a refund from state tax authorities.

If you believe your organization has overpaid excise taxes as result of the above change, please consider speaking with your accounting team about requesting a refund.

Please let us know if you have any questions regarding the above or need any assistance.