With changes from the Tax Cuts and Jobs Act (TCJA) in full force, all taxpayers have felt the effects in some way or another. Not-for-profit (NFP) organizations were affected by changes to their unrelated business income (UBI) tax calculation, the most controversial resulting from taxing qualified parking and transportation fringe (QPTF) benefits under Internal Revenue Code (IRC) Section 512(a)(7).
You can read more about the tax on QPTFs in our previous BKD Thoughtware® article. In summary, QPTFs were a deductible tax expense on a company’s tax return before the TCJA but were made nondeductible under §274 under the TCJA. The cost to maintain some employer-provided parking lots also is nondeductible, and organizations must perform a rigorous calculation to compute the cost to maintain the parking lots. Since these items were nondeductible to taxable businesses, the IRS under §512(a)(7) stated that UBI of an NFP organization shall be increased by the amount of the addback under §274, causing it to be taxed as UBI for NFP organizations.
Most states also chose to impose a tax on these amounts, as the base income for state UBI is the UBI from the federal Form 990-T, and Illinois was no exception. Many NFP organizations in Illinois objected to the unfair treatment of income to the organizations, as they weren’t created to make money. Upon confrontation, Illinois created Public Act 101-0545, stating that Illinois UBI is determined without the addition of QPTFs under §274 for NFP organizations, thus making them nontaxable. This will go into effect for tax years starting on or after January 1, 2019.
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