Final Regulations Address Transportation Fringe Benefits

The IRS has issued final regulations under Code Sec. 274 relating to the elimination of the employer deduction of for transportation and commuting fringe benefits by the Tax Cuts and Jobs Act ( P.L. 115-97), effective for amounts paid or incurred after December 31, 2017. The final regulations address the disallowance of a deduction for the expense of any qualified transportation fringe (QTF) provided to an employee of the taxpayer. Guidance and methodologies are provided to determine the amount of QTF parking expenses that is nondeductible. The final regulations also address the disallowance of the deduction for expenses of transportation and commuting between an employee’s residence and place of employment.

The final regulations adopt earlier proposed regulations with a few minor modifications in response to public comments ( REG-119307-19). Pending issuance of these final regulations, taxpayers had been allowed to apply to proposed regulations or guidance issued in Notice 2018-99, I.R.B. 2018-52, 1067. Notice 2018-99 is obsoleted on the publication date of the final regulations.

The final regulations clarify an exception for parking spaces made available to the general public to provide that parking spaces used to park vehicles owned by members of the general public while the vehicle awaits repair or service are treated as provided to the general public.

The category of parking spaces for inventory or which are otherwise unusable by employees is clarified to provide that such spaces may also not be usable by the general public. In addition, taxpayers will be allowed to use any reasonable method to determine the number of inventory/unusable spaces in a parking facility.

The definition of "peak demand period" for purposes of determining the primary use of a parking facility is modified to cover situations where a taxpayer is affected by a federally declared disaster.

The final regulations also provide that taxpayers using the cost per parking space methodology for determining the disallowance for parking facilities may calculate the cost per space on a monthly basis.

Effective Date
The final regulations apply to tax years beginning on or after the date of publication in the Federal Register. However, taxpayers can choose to apply the regulations to tax years ending after December 31, 2019.