A recently revised IRS webpage intended for charities and nonprofit employers highlights the tax rules applicable to employer-provided parking and what to expect if the IRS audits this benefit. As background, employers may provide tax-free parking to employees as a qualified transportation fringe benefit under Code § 132(f). The dollar amount of qualified parking expenses that may be excluded from an employee’s gross income cannot exceed a statutory maximum, which is subject to annual cost-of-living adjustments. (For 2022, the maximum is $280 per month—see our Checkpoint article.) The webpage explains that the value of employer-provided parking is based on the general rules for valuing fringe benefits under Treas. Reg. § 1.61-21(b)(2). These rules provide that an employee must include in gross income the amount by which the fair market value of the benefit exceeds the sum of the amount, if any, paid for the benefit by or on behalf of the recipient, and the amount, if any, specifically excluded under the Code. The fair market value, which is determined based on all the facts and circumstances, is generally the amount that an individual would have to pay for the parking at the same or a comparable site in an arm’s length transaction.
The webpage also provides tips for IRS auditors who may encounter qualified parking benefits as part of their investigations. Auditors are advised to—
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Determine whether the employer provides parking for any employees;
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Request a list of employees entitled to receive employer-provided parking;
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Determine if the employer includes any portion of the benefit in employees’ wages;
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Request the method used to determine the value of the parking benefit; and
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If necessary, conduct a survey of nearby parking facilities to determine the fair market value of the benefit.
EBIA Comment: Valuation issues generally arise with respect to qualified parking only where it is provided in-kind by the employer—in other words, where the employer provides parking at its own lot. Employers providing qualified parking benefits should document how they determine the value of the benefit and be prepared to produce that documentation in the event of an audit. For more information, see EBIA’s Fringe Benefits manual at Sections XX.D (“Qualified Parking”) and XX.H.4.a (“How to Value Qualified Parking Benefits”).
Contributing Editors: EBIA Staff.