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.
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.
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:
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.
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 | firstname.lastname@example.org
© 2020 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.