Pension & Benefits News Proposed regulations address eliminated deduction for qualified transportation fringe expenses
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Wednesday, July 8, 2020

Proposed regulations address eliminated deduction for qualified transportation fringe expenses

By Pension and Benefits Editorial Staff

Proposed regulations provide guidance regarding the elimination of the deduction for expenses related to qualified transportation fringe benefits (QTFs) provided to an employee. The Tax Cuts and Jobs Act (P.L. 115-97) eliminated the deduction, effective for amounts paid or incurred after December 31, 2017.

The proposals provide a general rule and three simplified methodologies to determine the amount of QTF parking expense that is nondeductible when a parking facility is owned or leased by an employer. Additionally, the proposals address the disallowance of deductions for expensed related to providing employees transportation in a commuter highway vehicle and transit passes. In general, the proposals refine guidance previously provided in Notice 2018-99, 2018-52 I.R.B. 1067.

The proposed regulations include definitions from Notice 2018-99, with modifications in response to public comments, as well as new definitions to clarify application of the rules.

If an employer pays a third party for its employee’s QTF, the disallowance is generally calculated as the taxpayer’s total annual cost of the QTF paid to the third party.

In valuing a QTF relating to employee-owned or leased parking facilities an employer may choose to apply the general rule or any of the three simplified methods for each tax year and each parking facility. Statistical sampling may be used with the general rule or simplified methodologies.

The general rule allows a taxpayer to calculate the disallowed amount based on a reasonable interpretation of the statute. However, the actual expense paid or incurred in providing the QTF must be used. The value of the QTF to the employee is ignored. In addition to the employee must allocate parking expenses to reserved employee spaces and properly apply the exception for parking made available to the general public. Parking spaces may be aggregated by geographical location.

Special rules explain how to allocate mixed parking expenses, aggregate parking spaces by geographic location, and remove inventory/unusable spaces from available parking spaces. Five or few reserved parking spaces may be disregarded if the reserved spaces are 5 percent or less of total parking spaces.

Effective date. The proposals will apply in tax years beginning on or after the date they are published as final regulations. However, a taxpayer may rely on the proposals for expenses paid or incurred in tax years beginning after December 31, 2017. Alternatively, a taxpayer may rely on the guidance provided in Notice 2018-99 until the proposals are finalized.

SOURCE: IR-2020-125, June 19, 2020.

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