As you are probably aware, the Internal Revenue Service has added a new provision to the tax code for 2018, whereby nonprofit organizations are subject to unrelated business tax (UBIT) on commuting benefits provided to their employees. The tax is imposed on commuting benefits paid by non-profits, including those that are paid by employees with pre-tax dollars.
Governor Cuomo has now signed the UBIT bill (S8831/A11051), which eliminates the State Unrelated Business Income Tax on nonprofit employees’ commuter benefits. While this is anticipated to save New York nonprofit organizations an estimated $364 million, the federal tax on commuter benefits will still be due. Many advocate groups are still fighting for its repeal and are requesting nonprofits to reach out to their elected officials in this effort.
Concurrent with the NYS UBIT bill, the IRS released notice 2018-100, which provides transitional penalty and interest relief for nonprofit organizations who will be subject to UBIT for the first time as a result of these changes to commuter benefits. So long as the organization only has UBIT due from qualified transportation fringe benefits provided to employees, was not required to file a UBIT return in the prior year, and files and pays in a timely manner in the upcoming year, the IRS has granted automatic relief from penalties and interest.
If you have any questions regarding the commuter benefit UBIT, please don’t hesitate to contact us.
Kenneth R. Cerini, CPA, CFP, FABFA
Ken is the Managing Partner of Cerini & Associates, LLP and is the executive responsible for the administration of our not-for-profit and educational provider practice groups. In addition to his extensive audit experience, Ken has been directly involved in providing consulting services for nonprofits and educational facilities of all sizes throughout New York State in such areas as cost reporting, financial analysis, Medicaid compliance, government audit representation, rate maximization, board training, budgeting and forecasting, and more.