Final rules govern disallowed transportation fringe benefits

The IRS issued final regulations implementing changes to Sec. 274 that disallow a deduction for the expense of any Sec. 132(f) qualified transportation fringe (QTF) provided to an employee, effective for amounts paid or incurred after Dec. 31, 2017 (T.D. 9939). The changes were enacted in the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. The regulations provide guidance to determine what QTF expenses are nondeductible and how to apply certain exceptions under Sec. 274(e) that may allow QTF expenses to be deductible. The final regulations make a few changes to the proposed rules (REG-119307-19) in response to comments received.

Parking

If a taxpayer pays a third party for its employee’s QTF, the Sec. 274(a)(4) disallowance is generally calculated as the taxpayer’s total annual cost of the QTF paid to the third party. With regard to QTF parking expenses, the regulations provide that if the taxpayer owns or leases all or a portion of one or more parking facilities, the Sec. 274(a)(4) disallowance may be calculated using a general rule or any one of three simplified methods.

One change to the proposed regulations made in response to a comment was to clarify that cars parked at a car repair shop are treated as owned by the general public. Therefore, parking spaces that are used to park vehicles owned by members of the general public while the vehicles await repair or service on the taxpayer’s premises also are treated as provided to the general public.

The regulations also include a special rule for certain mixed parking expenses to reduce administrative burdens for taxpayers and simplify calculations. The final regulations further simplify these rules.

The rules extend the 5% optional rule for allocating certain mixed parking expenses to the general rule as a further attempt to reduce administrative burdens for taxpayers and to simplify calculations in complying with Sec. 274(a)(4). The optional rule for allocating certain mixed parking expenses can be used in applying the general rule, the primary use methodology, and the cost per space methodology. In addition, this optional rule may be used by taxpayers using the qualified parking methodology, but solely for determining total parking expenses. This optional rule may be used to determine total parking expenses under any of the parking methodologies permitted in either the proposed or final regulations.