The IRS recently released final regulations (TD 9939) on the elimination of deductions for employee parking and other qualified transportation fringe (QTF) benefits. The final regulations substantially adopt proposed regulations issued in June, but make some changes in response to taxpayer comments. For more details on the proposed regulations, see our prior coverage.
The final regulations clarify several definitions provided in the proposed regulations. Other notable changes include extending the 5% optional rule for allocating certain mixed parking expenses to the general rule for calculating the disallowance of deductions for QTFs, clarifying that a taxpayer who chooses to apply the 5% optional rule is not required to apply the rule to allocate all eligible mixed parking expenses and providing that the Section 274(l) disallowance does not apply to Section 162(a)(2) business expenses paid or incurred while traveling away from home.
The final regulations also provide that the deduction disallowance generally should not apply to expenses for parking that has no objective value, such as parking in industrial, remote or rural areas (i.e., areas where the general public would not pay to park), provided the employer can demonstrate that the fair market value of the parking is zero. In response to COVID-19, the final regulations also offer taxpayers affected by a federally declared disaster a number of special rules, including the flexibility to determine the primary use of parking spaces used by employees during a “peak demand period.”
The final regulations generally apply to tax years beginning on or after their publication in the Federal Register, but taxpayers may choose to apply them to tax years ending after Dec. 31, 2019.
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