On December 20, 2019, the “Taxpayer Certainty and Disaster Tax Relief Act of 2019” was signed into law for the 2020 fiscal year. The legislation included a provision which has repealed IRC Section 512(a)(7), known as the “Parking Tax” for tax-exempt entities, as well as a provision that simplified the net investment income tax imposed on private foundations.
The Parking Tax was originally enacted in 2017 as part of the “Tax Cuts and Jobs Act”. This required tax-exempt entities to recognize unrelated business taxable income (“UBTI”) for amounts paid as qualified transportation fringe benefits provided to employees. Qualified transportation fringe benefits include all amounts paid by the employer to the employee for public transportation, as well as the use of parking. The Taxpayer Certainty and Disaster Relief Act of 2019 repeals the Parking Tax retroactively to the date of its enactment.
Prior to the passage of the “Taxpayer Certainty and Disaster Relief Act of 2019”, private foundations were subject to a 2% tax rate on all net investment income. If certain requirements were met, foundations were able to reduce this tax rate from 2% to 1%. The process in determining the tax rate has now been simplified by eliminating the two tax rate system and replacing it with a flat rate of 1.39%. The new tax rate is applicable to any foundations that have a tax year beginning after December 20, 2019.