Think Transportation-Related Fringe Benefits are Now Excluded from UBIT for Wisconsin Purposes? Think Again!

02.18.20

On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act, 2020 (P.L. 116 – 94) into law. Along with making certain appropriations, this legislation repealed the requirement that tax-exempt entities include certain transportation-related fringe benefits provided to their employees in their unrelated business taxable income (“UBTI”). However, until the Wisconsin legislature takes action to incorporate this amendment into the version of the Internal Revenue Code adopted for purposes of calculating a tax-exempt entity’s Wisconsin UBTI, tax-exempt entities in Wisconsin are required to continue including transportation-related fringe benefits in the UBTI reported on their Wisconsin Form 4‑T (Wisconsin Exempt Organization Business Franchise or Income Tax return).

The following questions and answers are meant to provide some information on the types of benefits that may be impacted, as well as the steps tax-exempt organizations in Wisconsin should take in order to make sure they are providing their advisors with the information necessary to include the value of these benefits on their Form 4‑T.

What Transportation-Related Fringe Benefits are includible in UBTI for Wisconsin Purposes?

In order to determine what Transportation-Related Fringe Benefits (“Transportation Benefits”) are includible in UBTI for Wisconsin purposes, we must look to the original language of P.L. 115 – 97 (commonly referred to as the ​“Tax Cuts and Jobs Act” or ​“TJCA”) requiring inclusion of these benefits in UBTI. When the TJCA was passed at the end of 2017, it required that a new subsection be added to Section 512(a) of Internal Revenue Code. New Section 512(a)(7) required tax-exempt organizations to include the following transportation-related fringe benefits (“Transportation Benefits”) in their UBTI, so long as those expenses were not already directly connected to an unrelated trade or business already carried on by the organization: 

1. Transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee’s residence and place of employment; 
2. Any transit pass; 
3. Any Qualified Parking (parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work in a commuter highway vehicle, or by carpool); 
4. Any qualified bicycle commuting reimbursement; 
5. Any cash reimbursement paid by an employer to an employee for a benefit described in paragraph 1 – 3 above (note: this shall only apply to a cash reimbursement for transit passes if a voucher or similar item which may be exchanged for a transit pass is not readily available for direct distribution by the employer to the employee); and 
6. Any parking facility used in connection with Qualified Parking.

What Information Do Tax-Exempt Entities Need to Collect in Order to Properly Report Transportation Benefits on their Form 4‑T?

In order to properly report Transportation Benefits on their Form 4‑T, tax-exempt entities and their advisors must be able to accurately value these benefits. Some of these benefits, such as transit passes and reimbursements issued in accordance with the entity’s established reimbursement policies, may be fairly easy to value. However, others (such as the value of a parking facility used in connection with Qualified Parking) may be more difficult to value. While the Treasury Department did issue some guidance on the valuation of certain Transportation Benefits prior to repeal of Internal Revenue Code Section 512(a)(7), these regulations are complex, and their application is heavily fact-intensive.

What Steps Should Tax-Exempt Entities Take in Order to Make Sure They are Properly Valuing and Reporting Transportation Benefits?

Given the complexity of the existing guidance regarding the original treatment of Transportation Benefits under the TJCA (and the remaining questions left unanswered by this guidance), tax-exempt entities should contact their tax advisors to confirm that the procedures they are using to value their Transportation Benefits still comply with the requirements originally provided under Internal Revenue Code Section 512(a)(7) and its related regulations.

If you have any additional questions regarding inclusion of transportation-related fringe benefits in UBTI for Wisconsin purposes, please feel free to contact a member of our firm’s Tax-Exempt Organizations Group.