Firm Proposes Safe Harbor for Parking Fringe Expenses

May 1, 2019

Kimberly Koch
Office of Tax Policy
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Dear Ms, Koch,

I appreciate your willingness to meet on an issue related to the implementation of a provision of the 2017 tax reform legislation (commonly referred to as the "Tax Cuts and Jobs Act") that has burdensome implications for larger employers across the United States.

Purpose of the Meeting. The Tax Cuts and Jobs Act (Public Law 115-97, the "Act") disallows an employer deduction for qualified parking expenses offered to employees as a qualified transportation fringe benefit (QTF). On December 10, 2018, the IRS issued Notice 2018-99 ("Notice"), which provides interim guidance for employers to determine the amount of nondeductible parking expenses for QTF under IRC sec. 274(a)(4) (as amended by the Act).

The purpose of the meeting is to discuss alternative methods to determine the amount of the nondeductible qualified parking expense under IRC sec. 274(a)(4). The goal of an alternative approach would be to reduce the administrative and compliance burden associated with the new policy (and enhance the administrability of the provision) while at the same time adhere to the legislative policy objective. Our concern is with the prospect of employer tax departments having to undertake the onerous task of taking inventory of parking spots at all parking facilities and determining now many parking spots are used by employees, visitors or the general public.

Background. The Act amended Sec. 274(a)(4) to disallow the deduction for the expense of any QTF benefit that taxpayers (employers) provide to their employees.

The Notice provides that, until further guidance is issued, a taxpayer may calculate the IRC sec. 274(a)(4) parking expense disallowance using any reasonable method. The Notice further provides a four-step methodology that the IRS deems to be a reasonable method ("Notice Method").

Implicit in the four-step methodology in the Notice Method is that an employer must make determinations regarding —

This methodology can create onerous administrative burdens for employers, particularly large employers with thousands of parking spots in multiple facilities across the country For example, the Notice Method provides that the utilization of parking spots by employees, partners, and independent contractors is to be "tested during normal business hours on a typical business day." Generally speaking, taxpayers have never had to account for parking spots or determine expenses allocable to a parking facility; the Notice Method will require employers to make highly subjective determine nations and segregation of costs. The complexities are exacerbated for manufacturers and other businesses that don't operate in a traditional "business day" setting — for example, a manufacturer that operates multiple shifts and whose parking facilities are utilized by employees and non-employees alike (such as consultants, suppliers and vendors, janitorial staff, contract security staff) — with different users throughout the business day Another complication involves parking facilities that are made available to employees of multiple employers on a "first-come, first-serve" basis.

Other complexities relate to the Notice Method's requirement to identify specific costs. For example, in determining the amount of property taxes attributable to a parking facility, many property tax assessments are not segregated as between a building and an adjacent parking facility. Using square footage to allocate such costs would disproportionately allocate property taxes to the parking facility. Employers will have to develop their own allocation method. This issue also will arise with several other expenses identified in Notice 2018-99.

In addition to creating complexity and uncertainty for large employers, the Notice Method will lead to significant administrative challenges for the government in verifying the correctness of the parking spots, their predominant use, and the associated specific costs.

Agenda. At the meeting, we would like to discuss in greater detail the concerns with the Notice Method and explore possible alternative methods that are consistent with the intent of the provision while providing a verifiable and administrable approach to determining the number of employee parking spots and the amount of disallowed parking expenses.

Thank you for your consideration of this important issue, and I look forward to meeting with you and your colleagues.

Sincerely,

Sam Olchyk
Venable LLP
Washington, DC

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 Alternative Approach to Determining the Amount of Disallowed Expenses for Employer-Provided Qualified Parking Pursuant to IRC Section 274

A. Proposed Safe Harbor — General Concepts

B. Determining the Number of Employee Parking Spots (Parking Spots Safe Harbor)

C. Determining the Annual Amount of Disallowed Parking Expenses (Parking Expenses Safe Harbor)

Example

ABC Manufacturing has 30,000 employees in 4 US cities.

• Downtown, Washington, DC: 20 employees (20 non-shift employees, 0 shift employees)

• Center City, Philadelphia, PA: 50 employees, (50 non-shift employees, 0 shift employees)

• Pennsport, Philadelphia, PA: 4,930 employees (930 non-shift employees, 4,000 shift employees on a 2-shift/day rotation)

• Pittsburgh, PA: 8,000 employees (600 non-shift employees, 7,400 shift employees on 2-shift/day rotation)

• Camp Hill, PA: 17,000 employees (2,000 non-shift employees, 15,000 shift employees on 3-shift/day rotation)

ABC does not own or lease parking spots at its Washington, DC location. It pays a third party $400/spot per month for 12 spots. ABC Manufacturing owns or leases parking spots for employees at the remaining locations.

Determining the Number of Employee Parking Spots under the Parking Spot Safe Harbor

1. Center City, Philadelphia, PA

2. Pennsport, Philadelphia, PA

3. Pittsburgh, PA

4. Camp Hill, PA

Determining the Amount of Disallowed Parking Expenses under the Parking Expense Safe Harbor

1. Indirect Disallowed Parking Expenses

2. Direct Disallowed Parking Expenses

3. Total parking expenses disallowed under section 274: $8,754,812

Background Information

Use of Parkopedia and Parking Property Advisors Data

The U.S. Department of Transportation and Bureau of Transportation Statistics are legislatively mandated to prepare and submit a Transportation Statistics Annual Report to Congress and the President each year (“DOT Report”). The 2018 edition of the DOT Report describes the Nation's transportation system, the system's performance, its contributions to the economy, and its effects on people and the environment, presenting the latest available data to examine national trends for all modes of transportation.

Most notably, the DOT Report acknowledges that “[t]he parking infrastructure in the United States is both vast and largely unmeasured at the national level.”⁵

Parkopedia⁶, the world's leading parking service provider, has data and information on the availability and pricing of parking meters, parking spaces, and parking lots in cities around the world. Parkopedia partnered with Parking Property Advisors⁷, which offers parking facility valuation and consulting services, to release a report titled “Top 40 US Cities Parking Index” which provides “parking stakeholders with hourly, daily, monthly and monthly reserved rates from the Central Business Districts of forty of the top US markets.”⁸

“In developing this report, Parking Property Advisors gathered data from more than 650 parking facilities representing more than 300,000 parking spaces via direct research with numerous operators, owners, appraisers and property inspections. This data was combined with Parkopedia's extensive store of parking information for the Top 40 US Central Business Districts.

“All prices were calculated as the median of corresponding parking rates for all publicly available off-street parking facilities in a city center based on Parkopedia's global dataset of parking in cities across US and Parking Property Advisors research of rates in Central Business Districts in major US cities.”

Given the lack of DOT data regarding parking infrastructure, and the considerable data compiled by Parkopedia and Parking Property Advisors, it is appropriate to rely on this data source.