Effective January 1, 2018, IRC §274 was amended through the Tax Cuts and Jobs Act (TC&JA) and generally disallows an employer’s deduction for expenses with respect to the cost of Qualified Transportation Fringe Benefits (QTFs) provided to employees. However, the TC&JA did not address how to determine the amount of the cost of employer-provided parking until the Notice 2018-99 was issued.  Consequently, many taxpayers believe that they do not have non-deductible employee parking expenses if they do not provide designated employee parking spaces; however, that is not always the case (see step 2 below).

The notice allows employers to use “any reasonable method” to calculate the cost of parking provided to employees when the employer owns or leases all or part of a parking facility. The notice states that “total parking expense” include but are not limited to repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent or lease payments. However, a deduction for an allowance for depreciation on a parking lot/structure, owned by a taxpayer and used for parking by the taxpayer’s employees, is an allowance for the exhaustion, wear, and tear and is not a parking expense.

The notice sets forth a four-step method that is deemed to be reasonable:

  • Step 1: Calculate the disallowance for reserved employee spots:
    • Cost of spots reserved for employees is not deductible.
    • Employer determines percentage of reserved spots to total spots and multiply this percentage by the total cost of parking.
  • Step 2: Determine the primary use of the remaining spots:
    • Primary use of parking spots is tested during normal business hours.
    • If more than 50% of the remaining spots are provided to the general public (not employees, partners), then the remaining parking expenses are fully deductible, if not, then then continue to step 3.
  • Step 3: Calculate the allowance for reserved non-employee spots:
    • Cost of spots reserved for non-employees is fully deductible.
    • Employer determines the percentage of reserved non-employee spots to total parking spots and then multiply the percentage by the total cost of parking.
  • Step 4: Determine the remaining use and allocate expense:
    • If there are remaining parking expenses not categorized then the employer should determine the employee use during normal business hours.
    • Methods to determine may include identifying the number of employee spots based on actual or estimated usage.

The notice issued does state that employers can still deduct parking that is taxable to the employee, but parking provided on a pre-tax basis to employees under a salary reduction agreement are not deductible.

Finally, the guidance provided in the notice is interim and not final. The notice states that the IRS intends to publish proposed regulations to address the determination of nondeductible parking expenses.

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