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Waiver of estimated tax penalties attributable to fringe benefit UBTI

Waiver of estimated tax penalties, fringe benefit UBTI

The IRS released an advance version of Notice 2018-100 to provide a waiver of the addition to tax under section 6655 for underpayment of estimated income tax payments to the extent the underpayment is attributable to section 512(a)(7) for certain tax-exempt organizations.


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Specifically, Notice 2018-100 [PDF 82 KB] provides relief to tax-exempt organizations that were not required to file a Form 990-T, Exempt Organization Business Income Tax Return, for the tax year preceding the organization’s first tax year ending after December 31, 2017.

The IRS also released Notice 2018-99 providing interim guidance on computing unrelated business taxable income under section 512(a)(7) attributable to nondeductible parking expenses. Read TaxNewsFlash


Section 512(a)(7), added to the Code by the new U.S. tax law (Pub. L. No. 115-97, enacted in December 2017), increases unrelated business taxable income (UBTI) by amounts paid or incurred to provide certain transportation fringe benefits to employees of tax-exempt organizations. 

In general, taxpayers must pay estimated income tax on a quarterly basis (to the extent that the taxes are not withheld), and section 6655(a) imposes an addition to tax for failure to make a sufficient and timely payment of estimated income tax. 

Notice 2018-100

Recognizing that enactment of section 512(a)(7) may result in tax-exempt organizations owing unrelated business income tax and having to pay estimated income tax for the first time, Notice 2018-100 waives the addition to tax under section 6655 for a failure to make estimated income tax payments. The waiver applies if the exempt organization meets the following conditions:

  • It was not required to file Form 990-T for the tax year preceding its first tax year ending after December 31, 2017 (e.g., 2016 Form 990-T for fiscal year filers and 2017 Form 990-T for calendar year filers);
  • The estimated tax was required to be paid on or before December 17, 2018; and
  • The underpayment is attributable to section 512(a)(7). 

To claim the waiver, the tax-exempt organization must timely file its Form 990-T, timely pay the amount reported for the tax year for which relief is granted, and write “Notice 2018-100” on the top of its Form 990-T.

KPMG observation

The lack of guidance about the tax law changes enacted with respect to the fringe benefit UBTI left tax-exempt organizations with questions about the extent of their UBTI liability under section 512(a)(7) and, as acknowledged in the notice, with a need for “additional time to develop the knowledge and processes to comply with estimated income tax payment requirements.”

However, the relief provided by Notice 2018-100 generally is available only for those tax-exempt organizations that did not have a 2016 Form 990-T (fiscal year filers) or 2017 Form 990-T (calendar year filers) filing requirement (i.e., for the tax year preceding the organization’s first tax year ending after December 31, 2017). The IRS has not indicated whether it will grant additional relief or waivers to other exempt organizations. Exempt organizations that do not qualify for relief under the notice may, however, avoid the addition to tax under section 6655(a) if their previous tax year was 12 months in length and they made timely installment payments equal to at least 100% of the tax shown on the prior year’s return.       


For more information, contact a tax professional with KPMG’s Washington National Tax practice:

Preston Quesenberry | +1 202 533 3985 |

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