IRS proposes new regs concerning qualified transportation fringe expenses

Heads up! IRS recently published proposed regulations with guidance on the deduction of qualified transportation fringe expenses and commuting expenses.

As you know, due to the Tax Cuts and Jobs Act, companies are no longer allowed to deduct for qualified transportation fringe (QTF) expenses or certain expenses related to employee transportation/commuting between home and work.

An IRS news release explains that broadly, these proposed regulations:

• address the elimination of the deduction for qualified transportation fringe expenses
• provide methods to determine the amount of a qualified transportation fringe parking expense that’s nondeductible, and
• include definitions and special rules to clarify and simplify the calculations of those methods.

The finer points

A few notable points found in the proposed regulations, according to an AICPA expert, are:

1. Parking: The older Notice 2018-99 included interim rules on how to determine the amount of parking expenses that’s nondeductible. After its release, IRS received lots of comments and questions. So, the new proposed regs expand on that notice. They provide more details on handling calculations for specific situations (e.g., when you pay a third party for employee parking, when your company owns/leases a parking facility for employees’ use). There’s also a special rule for “mixed parking expenses” to help simplify your calculations.
2. Commuter highway vehicle and transit pass expenses: The 2018 notice only talked about parking QTF expenses. But the proposed regs also discuss the disallowance of deductions for commuter highway vehicle expenses and transit pass QTFs.
3. Transportation/commuting expenses: Generally, the Tax Cuts and Jobs Act disallows deductions for transportation expenses incurred for travel between an employee’s residence and place of work. That is, unless they’re necessary to ensure an employee’s safety. The proposed regulations define exactly what “residence” and “safety of the employee” mean, so there’s less confusion on that front.