With the retroactive repeal of Internal Revenue Code (IRC) Section 512(a)(7), many tax-exempt organizations are now entitled to a refund of UBI taxes paid on QTFs as explained in GRF’s December 23, 2019 industry alert. On January 21, 2020, the Internal Revenue Service (IRS) posted instructions on its website on how to claim a refund of these taxes on Form 990-T. See https://www.irs.gov/forms-pubs/how-to-claim-a-refund-or-credit-of-unrelated-business-income-tax-ubit-or-adjust-form-990-t-for-qualified-transportation-fringe-amounts
Tax practitioners and tax-exempt organizations were hoping that IRS would provide streamlined procedures for filing refund claims to reduce the cost of compliance that enactment, and now repeal, of Section 512(a)(7) has imposed on the tax-exempt sector. The IRS website instructions, while helpful, do fall somewhat short of this desired outcome.
In order to receive a refund of the UBI taxes paid on QTFs, a tax-exempt organization must file an amended Form 990-T for each year in which such taxes were paid. Most tax-exempt organizations that were subject to the UBI tax under IRC Section 512(a)(7) will have to file at least two years of amended Forms 990-T.
If the amended return is being filed only to claim a refund, credit, or adjust information due to the repeal of Section 512(a)(7), “Amended Return – Section 512(a)(7) Repeal” should be written at the top of the return. Because of changes to the Form 990-T between 2017 and 2018, the IRS has provided separate line instructions for 2017 and 2018 refund claims.
The state impact of the federal repeal of the IRC 512(a)(7) tax will vary depending on if the tax-exempt organization’s state of filing automatically conforms to federal tax law changes, or whether the state must conform via legislative action (and whether it has done or will do so). We are currently seeking guidance and following developments as they occur. We will share more information as it becomes available.
Visit GRF’s Nonprofit Tax page for more information or speak with one of the contacts below.
Richard J. Locastro, CPA, JD
Partner and Director, Nonprofit Tax
Stephen J. Kelin, CPA, JD
Principal, Nonprofit Tax