Filed under: Not-for-Profits, Tax Compliance & Planning
You’ve finally squared away your organization’s 2018 Form 990 (or 990-PF or 990-EZ) when your accountant informs you the organization still owes tax on qualified transportation benefits provided to your employees. What? It’s true.
Since this new expense came into effect with the 2017 Tax Cuts and Jobs Act (TCJA), we’ve dedicated several articles in our newsletter to covering its impact. Under section 512(a)(7), added by the TCJA, tax-exempt organizations must increase unrelated business taxable income (UBTI) by amounts paid or incurred for any qualified transportation fringe benefits and any parking facility used in connection with qualified parking.
Steps to Take
Your accountant has filed or extended your organization’s Form 990-T and helped you compute and pay your first quarter 2019 estimated tax payment. But what about the estimated tax payments for 2018? You did not know about this in time to compute the payments and did not inform your accountant of it until it was time to prepare your organization’s return.
Well, if you are a first-time filer of the Form 990-T, you are in luck. IRS Notice 2018-100, issued late last year, provides a waiver of the penalties for underpayment of estimated tax payments for this tax, due before December 17, 2018, to organizations not required to file a Form 990-T for 2017 (or for fiscal year organizations, the tax year before the tax year ending in 2018). This relief is limited to tax-exempt organizations that timely file Form 990-T and timely pay the amount reported for the taxable year.
Taxpayers must pay federal income taxes as they earn income, usually by withholding or paying estimated tax on a quarterly basis. Generally, 25 percent of the required annual tax is due quarterly. Under section 6655(d)(1)(B) of the Code, the required annual payment is the lesser of (i) 100 percent of the tax on the return for the taxable year or (ii) 100 percent of the tax on the taxpayer’s return for the preceding taxable year, so long as the preceding taxable year was a full twelve months long and a tax return for that year showed tax liability. One can also compute the payments with an adjusted seasonal installment, a discussion of which is beyond the scope of this article. There are penalties and interest for failure to pay enough estimated tax timely.
Due to the new law on qualified transportation benefits, many tax-exempt organizations owe unrelated business income tax and must pay estimated income tax for the first time.
These taxpayers would not be eligible to use the safe harbor of paying estimated tax based on the tax in the preceding return. The IRS acknowledges in the Notice these organizations may need additional time to develop the knowledge and processes to comply with estimated income tax payment requirements. So, it has waived the penalties and interest for these first-time filers to the extent that the underpayment of estimated income tax results from this new law.
To claim the waiver under this notice, the tax-exempt organization must write “Notice 2018-100” on the top of its Form 990-T. Contact your tax advisor if you have already filed a Form 990-T and did not take advantage of this waiver.
If you have questions regarding estimated tax payments for qualified transportation benefits or need assistance with calculating them, please contact your tax advisor.
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