IRS Softens Blow After Tax Law Cut Nonprofit Employee Perks

(Bloomberg) -- The Internal Revenue Service moved to soften the hit from a controversial provision in last year’s tax overhaul that imposes a tax on some coveted benefits for employees at nonprofits.

The law sets a 21 percent tax rate for nonprofits on so-called fringe benefits -- such as free parking and fare for mass transit -- they provide to employees. Previously, nonprofits didn’t have to pay tax on the perks. Religious groups have pressured top Republican leaders, including House Ways and Means Chairman Kevin Brady, to repeal the tax this year.

Nonprofits, such as churches and colleges, would be given some leeway when calculating the cost of parking benefits and won’t face penalties this year if they were confused about how much they owed, according to guidance released by the IRS on Monday.

Brady, who had previously defended the provision, called for its elimination in a revised year-end tax package he released Monday afternoon.

“We want those nonprofit organizations to focus on their core missions,” Brady told reporters. “Repealing this allows them the certainty to do that.”

The IRS guidance is intended to provide certainty until Congress can change the law, a Treasury official said during a call with reporters.

The 21 percent tax on benefits has also faced some opposition in the Senate. Senators James Lankford, an Oklahoma Republican, and Chris Coons, a Delaware Democrat, asked the Treasury Department last month to delay the implementation of the tax until next year.

Preventing non-profits and for-profits from deducting transportation fringe benefits saves the federal government $17.7 billion over a decade, according to estimates from the non-partisan congressional Joint Committee on Taxation.

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