Exempt Orgs Have a Way to Avoid Tax on Athletic Facilities

Oct 12, 2018 | Nonprofit Organizations, Taxation

The new tax on athletic facilities provided by tax-exempt employers can easily be avoided through an existing deduction, according to one practitioner.


The Tax Cuts and Jobs Act (P.L. 115-97) imposes unrelated business income tax on some fringe benefits offered by tax-exempt employers.

“You can get around that fairly easily by making the on-site athletic facility available to all employees as opposed to just highly compensated employees,” Christopher Sears of Ice Miller LLP said September 24 during an American Law Institute Continuing Legal Education conference in Washington.

The Tax Cuts and Jobs Act (P.L. 115-97) imposes unrelated business income tax on some fringe benefits offered by tax-exempt employers like qualified transportation and on-site athletic facilities if a deduction isn’t allowable under section 274.

However, Sears noted that section 274(e)(4) generally allows employers to deduct expenses for facilities that are available to all employees.

While there may be a simple solution for the athletic facility tax, the tax on transportation benefits like parking facilities continues to perplex employers. Sears said it remains unclear how an employer should calculate UBIT when a parking facility is provided by an employer’s landlord for no separate, additional charge.

Sears said that some entities will likely take the position that they simply don’t know how to calculate UBIT on parking benefits, but added that he’s not sure that’s the best position to take.

The American Bar Association Section of Taxation and the Council on Foundations have both requested clarifications on the parking issue. Churches and other charities have asked for a delayed implementation of the tax, which they said will have a “devastating impact.”

Some lawmakers are looking to nix the tax on transportation benefits and athletic facilities under section 512(a)(7) altogether. The Lessening Impediments From Taxes for Charities Act (S. 3332 ), introduced by Sen. James Lankford, R-Okla., would repeal section 512(a)(7). Lankford’s bill is a companion to H.R. 6460, introduced in July by Rep. Mark Walker, R-N.C.

The Nonprofits Support Act (H.R. 6037), introduced by Rep. K. Michael Conaway, R-Texas, would repeal both section 512(a)(7) and section 512(a)(6), which requires nonprofits to compute unrelated business income separately for each trade or business.


This article was written by Stephanie Cumings and originally published by Tax Notes. To learn more about the author and Tax Notes,  please visit www.taxnotes.com.

Stephanie Cumings wrote this article as a result from her attendance at ALI CLE’s Employee Benefit Plans of Tax Exempt and Governmental Employers 2018 conference in Washington, D.C. More information about this program can be found here: http://www.ali-cle.org/ca009