This change in Section 512(a)(7) taxes nonprofit organizations – including houses of worship – for the cost of parking and transit benefits provided to employees. This significant change in the treatment of charitable organizations will require many nonprofit organizations to file federal Form 990-T and pay federal taxes on the cost of parking and transit benefits provided to their staff. Not only does this provision impose a new tax on nonprofits, this provision also burdens nonprofits and houses of worship with burdensome accounting and regulatory compliance costs. It is likely that these costs will exceed the tax actually collected from nonprofit organizations.
Perhaps worst of all, this provision will hopelessly entangle the IRS with houses of worship, simply because these houses of worship allow their clergy to park in their parking lots. For good reasons grounded in the First Amendment, houses of worship are not required to file tax returns each year. This policy allows houses of worship to operate independently from the government and shields houses of worship from government interference and intrusive public inspection into their internal, constitutionally protected operations, as nonprofit tax returns are available to the public.
Further, it is our understanding that the Joint Committee on Taxation’s score of a full repeal of Section 512(a)(7) (S. 3332 / H.R. 6460) tells the story of the toll this provision will take on the charitable sector: $1.7 billion over 10 years. Whatever purpose Section 512(a)(7) was intended to serve cannot justify extracting $1.7 billion in taxes from nonprofits and houses of worship within just 10 years. While the organizations and houses of worship will pay these taxes, it is the people they serve who will ultimately suffer from this massive diversion of funds from civil society to the government. Read more»