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IRS' Final Transportation Benefit Rules Provide Pandemic Relief

By David van den Berg · December 9, 2020, 8:58 PM EST

The IRS in final regulations released Wednesday provided some relief in response to the coronavirus pandemic regarding how businesses can calculate the amount of employee parking that can no longer be deducted under changes made by the 2017 tax law.

The final rule allows businesses to calculate their parking disallowance by determining the total amount of parking spaces used by employees during a typical business day. But the Internal Revenue Service included an optional rule allowing owners or lessors of parking facilities affected by federally declared disasters such as the COVID-19 pandemic to refer to a typical business day in the taxable year prior to the date the federally declared disaster affected operations.

Under the optional rule in the final regulations, a restaurant that moved from dine-in to takeout service because of the pandemic could determine its parking disallowance under the primary use test by parking used on a typical business day before the change.

"In order to allow taxpayers affected by the COVID-19 pandemic to benefit from this rule, the final regulations allow a taxpayer to apply this rule to taxable years ending after Dec. 31, 2019," the rules said. "This rule is intended to provide relief to both calendar and fiscal year taxpayers, as well as taxpayers with a seasonal business, that are affected by a federally declared disaster."

The final rule was largely adopted without significant alterations to the proposed regulations released in June on the changes to the treatment of transportation and commuting benefits under the Tax Cuts and Jobs Act . That law prohibited deductions on any qualified transportation fringe benefits as defined under IRC Section 132(f) , including reimbursed expenses for transportation to work and parking provided by employers.

Treasury and the IRS solicited suggestions in the proposed rules for what changes, if any, were needed to respond to major changes in employee parking because of the pandemic. One commenter proposed that the final regulations grant a COVID-19 exception for employees not working at their workplace and therefore not using employee parking.

In response, the IRS said businesses could achieve a similar result by using a monthly method for computing their parking disallowance.

The final rule kept the four-step process used to determine the employee parking disallowance originally outlined in a 2018 notice. Under that process, businesses calculate the disallowance for reserved employee spots, determine the primary use of the remaining spots, calculate the allowance for reserved nonemployee spots and finally make a determination of the remaining use and allocable expenses.

--Additional reporting by Joshua Rosenberg and Amy Lee Rosen. Editing by Joyce Laskowski.

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