Line items

IRS clarifies nondeductibility, UBTI inclusion of qualified parking fringe benefit

In Notice 2018-99, the IRS provided guidance on determining the amount of expenses of parking as a qualified transportation fringe benefit that is nondeductible by employers under Sec. 274, as amended by the legislation known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. The notice also addressed a corresponding increase in unrelated business taxable income (UBTI) by tax-exempt employers for nondeductible parking expenses under Sec. 512, also a new TCJA provision. If the employer pays a third party for employee parking, the disallowed amount is the employer's total annual cost of employee parking paid to the third party, to the extent it does not exceed the Sec. 132(f)(2) limitation on employee exclusion as a fringe benefit (for 2018, $260 per employee per month). An employer that owns or leases a parking facility may use any reasonable method to determine the disallowed amount. The notice provides a four-step method that will be considered reasonable. In either case, the UBTI inclusion is the amount that would be nondeductible under Sec. 274.

Also, with respect to this UBTI, in Notice 2018-100, the IRS provided relief from penalties for failure to make estimated tax payments required to be made on or before Dec. 17, 2018, to the extent the underpayment of estimated income tax results from the changes to the tax treatment of qualified transportation fringes made by the TCJA. The relief applies for organizations that were not required to file a Form 990-T, Exempt Organization Business Income Tax Return, for the tax year preceding the organization's first tax year ending after Dec. 31, 2017, and that timely file Form 990-T and timely pay the amount reported for the year relief is granted.

Tesla reaches credit phaseout sales threshold

In Notice 2018-96, the IRS announced that Tesla Inc. had indicated that in the calendar quarter ending Sept. 30, 2018, its cumulative sales of vehicles qualified under Sec. 30D(a) as plug-in electric drive motor vehicles eligible for a purchaser income tax credit had reached the statutory phaseout threshold per manufacturer of 200,000 vehicles. Consequently, the credit, the full amount of which under Sec. 30D(b) is $7,500, is reduced to 50% of that amount for qualifying vehicles Tesla sells between Jan. 1, 2019, and June 30, 2019. It will be further reduced to 25% for purchases from July 1, 2019, to Dec. 31, 2019, and to zero subsequently.

Standard mileage rates for 2019

In Notice 2019-02, the IRS set a 2019 optional standard mileage rate for 2019 of 58 cents per mile for business use of an automobile, up from 54.5 cents per mile in 2018. Use of an auto for medical care is deductible at 20 cents per mile, up from 18 cents in 2018. The IRS noted that for tax years 2018 through 2025, under changes by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, taxpayers may not claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Similarly, no deduction is available during that period for moving expenses, except for certain active duty military servicemembers. However, certain military reservists, state or local government officials paid on a fee basis, and certain performing artists may still claim travel expenses, including by use of the standard mileage rate, as an adjustment in determining adjusted gross income, the Service noted.

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Get Clients Ready for Tax Season

This comprehensive report looks at the changes to the child tax credit, earned income tax credit, and child and dependent care credit caused by the expiration of provisions in the American Rescue Plan Act; the ability e-file more returns in the Form 1040 series; automobile mileage deductions; the alternative minimum tax; gift tax exemptions; strategies for accelerating or postponing income and deductions; and retirement and estate planning.