Recent Issues: UBIT and Potential Refunds

​During this past legislative season, congress officially repealed the Internal Revenue Code’s (IRC) Section 512(a)(7). As a result of the legislative repeal, Idaho nonprofits who were required to pay higher taxes after December 31, 2017 due to the increased tax on transportation fringes, may now qualify for tax-credits or financial refunds.

If your organization was affected by the increased rates and wish to claim a refund or credit of the UBIT reported on your Form 990-T for 2017 or 2018 under Section 512(a)(7), you may do so by filing an amended Form 990-T as described in the form’s instructions.

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​How to Receive Refund

1. ​At the top of Form 990-T, write “Amended Return – Section 512(a)(7) Repeal.”
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2. Complete the Form 990-T as you originally did, but: 
   1. For a 2017 Form 990-T
      1. Reduce the entry on the line on which you originally included the 512(a)(7) amount by that amount. This would have been on line 12 (Other income) if you followed the Recent Developments article originally posted to IRS.gov in filing the 2017 Form 990-T.
      2. Complete the rest of the Form 990-T based on that revised entry.
      3. Include on the “Other” sub-line of line 45g (Other credits and payments) the amount of tax from line 48 (Tax due) of the original return (if any).
      4. If your changes result in your having made an overpayment, you should enter that amount on line 49 (Overpayment) line of the amended return, which you may request as a refund or credit on line 50.
   2. For a 2018 Form 990-T
      1. Enter “0” (zero) on line 34 (Amounts paid for disallowed fringes).
      2. Complete the rest of the Form 990-T based on that revised entry.
      3. Include on the “Other” sub-line of line 50g (Other credits, adjustments, and payments) the amount of tax from line 53 (Tax due) of the original return (if any).
      4. If your changes result in your having made an overpayment, you should enter that amount on line 54 (Overpayment) line of the amended return, which you may request as a refund or credit on line 55.
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3. Attach a statement indicating the line numbers on the original return that were changed and the reason for each change (for example, stating “repeal of Section 512(a)(7)”).

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​History and Background

​Section 512(a)(7) was enacted pursuant to the 2017 U.S. tax legislation known as the “Tax Cuts and Jobs Act.”  The provision required tax-exempt employers to increase their unrelated business taxable income (“UBTI”) by amounts paid or incurred for qualified transportation fringe benefits provided to employees, including the provision of parking and public transportation benefits. Despite certain guidance passed at the end of 2018, the provision caused concern amongst tax-exempt organizations because of the prospect of increased tax liability, the lack of clarity for determining the taxable amount of such benefits, and the additional administrative burdens triggered for certain organizations.

Pursuant to the new legislation, Section 512(a)(7) was repealed with retroactive effect to the date of its enactment. As a result, organizations should file an amended Form 990-T to claim a refund for any taxes paid related to such qualified transportation fringe benefits. Organizations are encouraged to consult their own tax advisors as to whether a state tax refund is available as well.

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