PODCAST: Impact of UBIT and Tax Cuts and Jobs Act of 2017 on Nonprofits

Published on: 08/02/2018 By: GSG

The following podcast breaks down the unrelated business income tax (UBIT) and the changes to fringe benefits under the new tax law.

The unrelated business income tax (UBIT) is generally imposed on activities that are unrelated to a nonprofit’s exempt mission.

For example, if your tax exempt mission is to provide low income affordable housing to the homeless and you begin making the housing available to those who are not homeless, such an activity could possibly be considered unrelated to the exempt mission of the organization and you would be required to pay UBIT with Form 990-T.

This podcast focuses on the ambiguous statute enacted as part of the TCJA which could potentially affect every nonprofit in a negative way – Code section 512(a)(7) which is related to employer-provided fringe benefits.

Effective January 1, 2018, this Code section treats, as income, the cost of providing transportation, parking, and on-premises athletic facility fringe benefits to your employees.

This is a significant change affecting all nonprofits. Even nonprofits who do not have to fill out a Form 990 will be impacted. This new tax distinctly involves nonprofit employers who reimburse or pay for the cost of parking and transportation benefits for employees. This new Code section has many grey areas, the largest being the situation where an employer owns or leases a parking lot and provides parking benefits free to its employees.

In this circumstance, the new Code section is very unclear as to how the capitalized cost of the parking lot is to be included in UBIT.  If this is the situation that was intended, almost every single nonprofit in the U.S. will owe tax on the cost of providing parking benefits to its employees.

While there is a very good chance for the effective date of this statute to be delayed, it is hard to predict. We can likely expect the news to be released sometime before the end of 2018.

In the meantime, GSG’s tax experts will be closely monitoring any updates. Our team is available to answer any questions you may have on UBIT and the changes to employer-provided fringe benefits.

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