Compensation Reduction Agreements for Transportation Benefits Subject to UBIT

Employee compensation reduction agreements may be treated as a qualified transportation benefit, per a recent change to IRS Publication 15-B. This point was confirmed by Janine Cook, Deputy Associate Chief Counsel – IRS, at this week’s Washington Non-profit Legal & Tax Conference. Tax reform changed the nature of qualified transportation benefits as no longer tax deductible to for-profit organizations. To provide parity, the amounts are now reportable as unrelated business income for nonprofit organizations. 

Employers in certain metro areas are required to provide certain qualified transportation benefits. This means that nonprofit employers that either pay directly for transportation benefits or allow their employees to reduce compensation for transportation will need to report these amounts as unrelated business income on the Form 990-T. 

Many professionals in the field have been surprised by the IRS’ position that compensation reduction agreements are subject to unrelated business income in addition to employer paid benefits. Some professionals have encouraged concerned employers to write the IRS or Treasury department urging administrative relief for small employers or delayed enforcement of this interpretation.

This provision was effective as of January 1, 2018 which will require estimated tax payments to be filed by April 17, 2018 for the first quarter.




This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.


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