The IRS method for valuing employer parking expenses contradicts the Joint Committee on Taxation (JCT)’s “Blue Book.” The Blue Book, officially known as the General Explanation of P.L. 115-97 (JCS-1-18), provides the JCT’s explanation of the Tax Cuts and Jobs Act (TCJA).
According to the IRS, an employer should not take depreciation into account when calculating the nondeductible portion of qualified parking benefits.
In contrast, the Blue Book includes depreciation in the value of an employee’s parking benefits.
Qualified Parking Fringe Benefits After TCJAs
Parking benefits are a popular fringe benefit, especially in urban areas. These benefits might take the form of employer-provided parking, or the employer might pay or reimburse the employee’s parking costs.
Traditionally, employers could deduct qualified parking fringe benefits. However, the TCJA prohibits employer deductions for any qualified transportation fringes, including parking benefits, that are excluded from the employee’s income.
The TCJA also provides two exceptions to this general disallowance rule. An employer may still deduct parking benefits that are:
- treated as compensation to the employee, or
- also made available to the general public—for instance, when a parking lot includes spaces for employees and for customers or visitors.
These rules mean that an employer must determine the amount of parking benefits:
- that are not deductible because they are fringe benefits that are excluded from the employee’s income; and
- that may be deductible because they are included in the employee’s compensation or are also available to the public.
JCT: Employer Parking Expenses Include Depreciation
According to the JCT Bluebook, an employer’s parking expenses include depreciation of the parking facility. This is because the TCJA doesn’t just prohibit employer deductions for qualified transportation fringe benefits. It also requires a tax-exempt employer to include its qualified transportation fringes in its unrelated business taxable income (UBTI).
The JCT reasons that:
- Both exempt and non-exempt employers are not allowed to deduct excludable transportation fringes.
- The rules for transportation fringes have to be consistent for exempt and non-exempt employers.
- Tax-exempt employers can deduct depreciation when they calculate UBTI.
- Therefore, non-exempt employers must also be allowed to deduct depreciation when they calculate their nondeductible expenses for parking fringe benefits.
IRS: Employer Parking Expenses Don’t Include Depreciation
According to the IRS, however, the TCJA amendments for non-exempt employers expressly refer to “parking expenses.” Depreciation is not an expense. Rather, it is an allowance for exhaustion, wear and tear, and obsolescence of the parking facility. Thus, it cannot be included in the employer’s parking expenses.
Instead, employers must determine their total parking expenses, and then subtract the portion that represents nondeductible fringe benefits. “Total parking expenses” may include:
- utility costs,
- property taxes,
- snow, ice, leaf, and trash removal,
- landscape costs,
- security and parking lot attendant expenses, security, and
- lease payments, if applicable.
However, parking expenses do not include depreciation.
Continued Uncertainty About Depreciation as a Parking Expense
The JCT Bluebook firmly states that depreciation should be included in an employer’s parking expenses. However, it notes that a technical correction may be necessary to clarify this rule. In fact, it even admits that a technical correction may be necessary to clarify its underlying theory that the rules must be the same for exempt and non-exempt employers.
Although the IRS does not specifically request comments on the exclusion of depreciation from “total parking expenses,” taxpayers may certainly provide feedback to the IRS on this issue. Members of the public can submit comment on the interim guidance at www.regulations.gov by February 22.
By Caroline Hosman, JD, LLM.