This notice provides guidance relating to the application of section 2202 of the CARES Act for qualified individuals and eligible retirement plans. Under section 2202 of the CARES Act, qualified individuals receive favorable tax treatment with respect to distributions from eligible retirement plans that are coronavirus-related distributions. A coronavirus-related distribution is not subject to the 10% additional tax under § 72(t) of the Code, generally is includible in income over a 3-year period, and, to the extent the distribution is eligible for tax-free rollover treatment and is contributed to an eligible retirement plan within a 3-year period, will not be includible in income. Section 2202 of the CARES Act also increases the allowable plan loan amount under § 72(p) of the Code and permits a suspension of payments for plan loans that are made to qualified individuals. The guidance in this notice is intended to assist employers and plan administrators, trustees and custodians, and qualified individuals in applying section 2202 of the CARES Act, including by providing guidance on how plans may report coronavirus-related distributions and how individuals may report these distributions on their individual federal income tax returns.

These proposed regulations provide guidance under section 274 of the Internal Revenue Code (Code) regarding certain amendments made to section 274 by the Tax Cuts and Jobs Act of 2017 (TCJA). These proposed regulations address the elimination of the deduction under section 274 for expenses related to certain transportation and commuting benefits provided by employers to their employees in taxable years beginning after December 31, 2017. The proposed regulations provide guidance to determine the amount of such expenses that is nondeductible and apply certain exceptions under section 274(e) that may allow such expenses to be deductible. These proposed regulations affect taxpayers who pay or incur expenses for transportation and commuting benefits in taxable years beginning after December 31, 2017.

Federal rates; adjusted federal rates; adjusted federal long-term rate, the long-term exempt rate, and the blended annual rate. For purposes of sections 382, 1274, 1288, 7872 and other sections of the Code, tables set forth the rates for July 2020.

(Also Sections 42, 280G, 382, 467, 468, 482, 483, 1288, 7520, 7872.)

This revenue ruling provides various prescribed rates for federal income tax purposes for July 2020 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(1) for buildings placed in service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, shall not be less than 9%. Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520. Finally, Table 6 contains the blended annual rate for 2020 for purposes of section 7872.

         

The applicable federal short-term, mid-term, and long-term rates are set forth for the month of July 2020. See Rev. Rul. 2020-14, page 33.

The applicable federal short-term, mid-term, and long-term rates are set forth for the month of July 2020. See Rev. Rul. 2020-14, page 33.

The adjusted applicable federal long-term rate is set forth for the month of July 2020. See Rev. Rul. 2020-14, page 33.

The applicable federal short-term, mid-term, and long-term rates are set forth for the month of July 2020. See Rev. Rul. 2020-14, page 33.

The applicable federal short-term rates are set forth for the month of July 2020. See Rev. Rul. 2020-14, page 33.

The applicable federal short-term, mid-term, and long-term rates are set forth for the month of July 2020. See Rev. Rul. 2020-14, page 33.

The applicable federal short-term, mid-term, and long-term rates are set forth for the month of July 2020. See Rev. Rul. 2020-14, page 33.

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of July 2020. See Rev. Rul. 2020-14, page 33.

The applicable federal mid-term rates are set forth for the month of July 2020. See Rev. Rul. 2020-14, page 33.

The applicable federal short-term, mid-term, and long-term rates are set forth for the month of July 2020. See Rev. Rul. 2020-14, page 33.

This notice provides guidance relating to the application of section 2202 of the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116-136, 134 Stat. 281 (2020) (CARES Act) for qualified individuals and eligible retirement plans. The CARES Act was enacted on March 27, 2020. Under section 2202 of the CARES Act, qualified individuals receive favorable tax treatment with respect to distributions from eligible retirement plans that are coronavirus-related distributions. A coronavirus-related distribution is not subject to the 10% additional tax under § 72(t) of the Internal Revenue Code (Code) (including the 25% additional tax under § 72(t)(6) for certain distributions from SIMPLE IRAs), generally is includible in income over a 3-year period, and, to the extent the distribution is eligible for tax-free rollover treatment and is contributed to an eligible retirement plan within a 3-year period, will not be includible in income. Section 2202 of the CARES Act also increases the allowable plan loan amount under § 72(p) of the Code and permits a suspension of payments for plan loans outstanding on or after March 27, 2020, that are made to qualified individuals. The guidance in this notice is intended to assist employers and plan administrators, trustees and custodians, and qualified individuals in applying section 2202 of the CARES Act, including by providing guidance on how plans may report coronavirus-related distributions and how individuals may report these distributions on their individual federal income tax returns.

This section provides guidance for eligible retirement plans (that is, employer retirement plans and IRAs) making, or accepting recontribution of, coronavirus-related distributions.

This section provides guidance for qualified individuals requesting and receiving coronavirus-related distributions. A qualified individual receiving a coronavirus-related distribution is entitled to the following favorable tax treatment with respect to the distribution by reporting the distribution on the individual’s federal income tax return for 2020 and on Form 8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments (or if there is no federal income tax return for 2020, by filing just Form 8915-E).¹ First, the 10% additional tax under § 72(t) (including the 25% additional tax under § 72(t)(6) for certain distributions from SIMPLE IRAs) does not apply to any coronavirus-related distribution. Second, a coronavirus-related distribution is permitted to be included in income ratably over 3 years. Third, a qualified individual is permitted to recontribute any portion of a coronavirus-related distribution that is eligible for tax-free rollover treatment to an eligible retirement plan within the 3-year period beginning on the day after the date on which the distribution was received, and the recontribution will be treated as if it were paid in a trustee-to-trustee transfer to an eligible retirement plan. See section 1.D of this notice for rules relating to which coronavirus-related distributions are permitted to be recontributed. Qualified individuals will use Form 8915-E to report any recontribution made during the taxable year and to determine the amount of the coronavirus-related distribution includible in income for the taxable year.

This section provides guidance regarding the application of section 2202(b) of the CARES Act to plan loans, including a safe harbor under which suspensions of payments and extensions of loan terms will be treated as satisfying section 2202(b)(2) of the CARES Act. As described in section 2.C of this notice, an employer is permitted to choose whether, and to what extent, to apply coronavirus-related plan loan rules described in this section (regardless of how coronavirus-related distributions are treated).

Under § 1.409A-3(j)(4)(viii), a nonqualified deferred compensation plan subject to § 409A may provide for a cancellation of a service provider’s deferral election, or such a cancellation may be made, due to an unforeseeable emergency or a hardship distribution pursuant to § 1.401(k)-1(d)(3). If a service provider receives a distribution from an eligible retirement plan that constitutes a coronavirus-related distribution, that distribution will be considered a hardship distribution pursuant to § 1.401(k)-1(d)(3) for purposes of § 1.409A-3(j)(4)(viii). As a result, a nonqualified deferred compensation plan may provide for a cancellation of the service provider’s deferral election, or such a cancellation may be made, due to a coronavirus-related distribution described in section 1.C of this notice. The deferral election must be cancelled, not merely postponed or otherwise delayed.

The principal author of this notice is Jamie Dvoretzky of the Office of the Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). For further information regarding this notice, contact Ms. Dvoretzky at (202) 317-4102 (not a toll-free number).

^<?>The Department of Labor has advised the Department of the Treasury and the IRS that it will not treat any person as having violated the provisions of Title I of the Employee Retirement Income Security Act (ERISA), including the adequate security and reasonably equivalent basis requirements in ERISA section 408(b)(1) and 29 CFR 2550.408b-1, solely because the person made a plan loan to a qualified individual during the period beginning on March 27, 2020, and ending on September 22, 2020, in compliance with CARES Act section 2202(b)(1) and the provisions of this notice. See EBSA Disaster Relief Notice 2020-01.

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations to implement legislative changes to section 274 of the Internal Revenue Code (Code) effective for taxable years beginning after December 31, 2017. Specifically, the proposed regulations address the elimination of the deduction under section 274 for expenses related to certain transportation and commuting benefits provided by employers to their employees in taxable years beginning after December 31, 2017. The proposed regulations provide guidance to determine the amount of such expenses that is nondeductible and apply certain exceptions under section 274(e) that may allow such expenses to be deductible. These proposed regulations affect taxpayers who pay or incur such expenses.

DATES: Written or electronic comments and requests for a public hearing must be received by August 24, 2020. Requests for a public hearing must be submitted as prescribed in the “Comments and Requests for a Public Hearing” section.

ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal Rulemaking Portal at www.regulations.gov (indicate IRS and REG-119307-19) by following the online instructions for submitting comments. Once submitted to the Federal Rulemaking Portal, comments cannot be edited or withdrawn. The IRS expects to have limited personnel available to process public comments that are submitted on paper through mail. Until further notice, any comments submitted on paper will be considered to the extent practicable. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comment submitted electronically, and to the extent practicable any comment submitted on paper, to its public docket. Send paper submissions to: CC:PA:LPD:PR (REG-119307-19), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, call Patrick Clinton of the Office of Associate Chief Counsel (Income Tax and Accounting), (202) 317-7005; concerning the submission of comments and/or requests for a public hearing, Regina L. Johnson, (202) 317-5177 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

The proposed regulations describe and clarify the statutory requirements of section 274(a)(4) and 274(l), as well as the applicability of certain exceptions under section 274(e) to QTF expenses. To implement the TCJA’s disallowance of deductions for QTF expenses under section 274(a)(4), the proposed regulations create a new §1.274-13 (proposed §1.274-13) to address QTF expenses paid or incurred by an employer, and the application of certain exceptions in section 274(e) to QTF expenses. Further, the proposed regulations create a new §1.274-14 (proposed §1.274-14) to address transportation and commuting expenses paid or incurred by an employer. As discussed in part 2 of the Background, the statutory changes made by the TCJA apply to QTF expenses paid or incurred by employers after December 31, 2017.

The Treasury Department and the IRS request comments on all aspects of these proposed regulations. Regarding QTF parking expenses under proposed §1.274-13, comments are specifically requested on other methodologies for determining the use of parking spaces and the related expenses allocable to employee parking. Comments are also requested on additional guidance needed to determine the amount of commuter highway vehicle and transit pass expenses for QTFs that is nondeductible under section 274(a)(4), including whether any specific examples should be addressed. Regarding transportation and commuting expenses under proposed §1.274-14, comments are specifically requested on additional guidance needed to determine whether transportation is necessary for ensuring the safety of the employee, and how to define an employee’s residence and place of employment. Comments are also requested on whether any specific examples of transportation and commuting expenses should be addressed.

These regulations are proposed to apply for taxable years beginning on or after the date these regulations are published as final regulations in the Federal Register. Pending the issuance of the final regulations, a taxpayer may rely on these proposed regulations for QTF expenses and transportation and commuting expenses, as applicable, that are paid or incurred in taxable years beginning after December 31, 2017. Alternatively, a taxpayer may choose to rely on the guidance in Notice 2018-99 until these proposed regulations are finalized.

These proposed regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations.

In accordance with the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that this proposed rule will not have a significant economic impact on a substantial number of small entities. Although the rule may affect a substantial number of small entities, the economic impact of the regulations is not likely to be significant. Data are not readily available about the number of taxpayers affected, but the number is likely to be substantial for both large and small entities because the rule affects any entity that provides QTFs or certain commuting benefits to employees. The economic impact of these regulations is not likely to be significant, however, because these proposed regulations substantially incorporate prior guidance and otherwise clarify the application of the TCJA changes to section 274 related to QTFs and certain commuting benefits. The proposed regulations will assist taxpayers in understanding the changes to section 274 and make it easier for taxpayers to comply with those changes. Notwithstanding this certification, the Treasury Department and the IRS welcome comments on the impact of these regulations on small entities.

Pursuant to section 7805(f), these proposed regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the “ADDRESSES” heading. Any electronic comments submitted, and to the extent practicable any paper comments submitted, will be made available at http://www.regulations.gov or upon request.

A public hearing will be scheduled if requested in writing by any person who timely submits electronic or written comments. Requests for a public hearing are also encouraged to be made electronically and can also be made as prescribed in this preamble under the “ADDRESSES” heading. If a public hearing is scheduled, notice of the date and time for the public hearing will be published in the Federal Register. Announcement 2020-4, 2020-17 IRB 1, provides that until further notice, public hearings conducted by the IRS will be held telephonically. Any telephonic hearing will be made accessible to people with disabilities.

IRS Revenue Procedures, Revenue Rulings, and Notices cited in this preamble are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS web site at http://www.irs.gov.

The principal author of this proposed regulation is Patrick Clinton, Office of the Associate Chief Counsel (Income Tax & Accounting). Other personnel from the Treasury Department and the IRS participated in their development.

Income Taxes, Reporting and recordkeeping requirements.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

Part 1—INCOME TAX

Paragraph 1. The authority citation for part 1 is amended by adding sectional authorities for §§1.274-13 and 1.274-14 in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805.

* * * * *

Section 1.274-13 also issued under 26 U.S.C. 274.

Section 1.274-14 also issued under 26 U.S.C. 274.

* * * * *

Par. 2. Sections 1.274-13 and 1.274-14 are added to read as follows:

§1.274-13 Disallowance of deductions for certain qualified transportation fringe expenditures.

(a) In general. Except as provided in this section, no deduction otherwise allowable under chapter 1 of the Internal Revenue Code (Code) is allowed for any expense of any qualified transportation fringe as defined in paragraph (b)(1) of this section.

(b) Definitions. The following definitions apply for purposes of this section:

(1) Qualified transportation fringe. The term qualified transportation fringe means any of the following provided by an employer to an employee: transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee’s residence and place of employment (as described in sections 132(f)(1)(A) and 132(f)(5)(B)); any transit pass (as described in sections 132(f)(1)(B) and 132(f)(5)(A)); or qualified parking (as described in sections 132(f)(1)(C) and 132(f)(5)(C)).

(2) Employee. The term employee means a common law employee or other statutory employee, such as an officer of a corporation, who is currently employed by the taxpayer. See §1.132-9 Q/A-5. Partners, 2-percent shareholders of S corporations, sole proprietors, and independent contractors are not employees of the taxpayer for purposes of this section.

(3) General public. The term general public includes, but is not limited to, customers, clients, visitors, individuals delivering goods or services to the taxpayer, students of an educational institution, and patients of a health care facility. If a taxpayer owns or leases space in a multi-tenant building, the term general public includes employees, partners, 2-percent shareholders of S corporations, sole proprietors, independent contractors, clients, or customers of unrelated tenants in the building. The term general public does not include individuals that are employees, partners, 2-percent shareholders of S corporations, sole proprietors, or independent contractors of the taxpayer. Also, an exclusive list of guests is not the general public.

(4) Parking facility. The term parking facility includes indoor and outdoor garages and other structures, as well as parking lots and other areas, where a taxpayer provides qualified parking (as defined in section 132(f)(5)(C)) to one or more of its employees. The term parking facility may include one or more parking facilities but does not include parking spaces on or near property used by an employee for residential purposes.

(5) Geographic location. The term geographic location means contiguous tracts or parcels of land owned or leased by the taxpayer. Two or more tracts or parcels of land are contiguous if they share common boundaries or would share common boundaries but for the interposition of a road, street, railroad, stream, or similar property. Tracts or parcels of land which touch only at a common corner are not contiguous.

(6) Total parking spaces. The term total parking spaces means the total number of parking spaces, or the taxpayer’s portion thereof, in the parking facility.

(7) Reserved employee spaces. The term reserved employee spaces means the spaces in the parking facility, or the taxpayer’s portion thereof, exclusively reserved for the taxpayer’s employees. Employee spaces in the parking facility, or portion thereof, may be exclusively reserved for employees by a variety of methods, including, but not limited to, specific signage (for example, “Employee Parking Only”) or a separate facility or portion of a facility segregated by a barrier to entry or limited by terms of access. Inventory/unusable spaces are not included in reserved employee spaces.

(8) Reserved nonemployee spaces. The term reserved nonemployee spaces means the spaces in the parking facility, or the taxpayer’s portion thereof, exclusively reserved for nonemployees. For example, such parking spaces may include, but are not limited to, spaces reserved exclusively for visitors, customers, partners, sole proprietors, 2-percent shareholders of S corporations, vendor deliveries, and passenger loading/unloading. Nonemployee spaces in the parking facility, or portion thereof, may be exclusively reserved for nonemployees by a variety of methods, including, but not limited to, specific signage (for example, “Customer Parking Only”) or a separate facility, or portion of a facility, segregated by a barrier to entry or limited by terms of access. Inventory/unusable spaces are not included in reserved nonemployee spaces.

(9) Inventory/unusable spaces. The term inventory/unusable spaces means the spaces in the parking facility, or the taxpayer’s portion thereof, exclusively used or reserved for inventoried vehicles, qualified nonpersonal use vehicles described in §1.274-5(k), or other fleet vehicles used in the taxpayer’s business, or that are otherwise not usable for parking by employees. Examples of such parking spaces include, but are not limited to, parking spaces for vehicles that are intended to be sold or leased at a car dealership or car rental agency, parking spaces for vehicles owned by an electric utility used exclusively to maintain electric power lines, or parking spaces occupied by trash dumpsters (or similar property).

(10) Available parking spaces. The term available parking spaces means the total parking spaces, less reserved employee spaces and less inventory/unusable spaces, that are available to employees and the general public.

(11) Primary use. The term primary use means greater than 50 percent of actual or estimated usage of the available parking spaces in the parking facility.

(12) Total parking expenses. The term total parking expenses means all expenses of the taxpayer related to total parking spaces in a parking facility including, but not limited to, repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent or lease payments or a portion of a rent or lease payment (if not broken out separately). A deduction for an allowance for depreciation on a parking facility owned by a taxpayer and used for parking by the taxpayer’s employees is an allowance for the exhaustion, wear and tear, and obsolescence of property, and not included in total parking expenses for purposes of this section. Expenses paid or incurred for nonparking facility property, including items related to property next to the parking facility, such as landscaping or lighting, also are not included in total parking expenses.

(13) Mixed parking expense. The term mixed parking expense means a single expense amount paid or incurred by a taxpayer that includes both parking facility and nonparking facility expenses for a property that a taxpayer owns or leases.

(14) Peak demand period. The term peak demand period refers to the period of time on a typical business day when the greatest number of the taxpayer’s employees are utilizing parking spaces in the taxpayer’s parking facility. If a taxpayer’s employees work in shifts, the peak demand period would take into account the shift during which the largest number of employees park in the taxpayer’s parking facility. However, a brief transition period during which two shifts overlap in their use of parking spaces, as one shift of employees is getting ready to leave and the next shift is reporting to work, may be disregarded. Taxpayers may use any reasonable methodology to determine the total number of spaces used by employees during the peak demand period on a typical business day. A reasonable methodology may include periodic inspections or employee surveys.

(c) Special rules for calculating disallowance of deductions for qualified transportation fringe parking expenses; taxpayer owned or leased parking facilities. Either or both of the following special rules may be used for determining total parking expenses and total parking spaces in calculating the disallowance of deductions for qualified transportation fringe parking expenses under the methodologies in paragraph (d)(2)(ii)(B) and (C) of this section. The special rule in paragraph (c)(2) of this section may be used for determining total parking spaces in calculating the disallowance of deductions for qualified transportation fringe parking expenses under the methodology in paragraph (d)(2)(i) of this section.

(1) Calculation of mixed parking expenses. For purposes of determining total parking expenses, a taxpayer may use any reasonable methodology to allocate the applicable portion of mixed parking expenses to a parking facility. A taxpayer may choose to allocate 5 percent of the following mixed parking expenses to a parking facility: lease or rental agreement expenses, property taxes, interest expense, and expenses for utilities and insurance.

(2) Aggregation of spaces by geographic location. If a taxpayer owns or leases more than one parking facility in a single geographic location, the taxpayer may aggregate the number of spaces in those parking facilities for purposes of calculating the disallowance of deductions for certain qualified transportation fringe expenses. For example, parking spaces at an office park or an industrial complex in the geographic location may be aggregated. However, a taxpayer may not aggregate parking spaces in parking facilities that are in different geographic locations.

(d) Calculation of disallowance of deductions for qualified transportation fringe expenses—(1) Taxpayer pays a third party for parking qualified transportation fringe. If a taxpayer pays a third party an amount for its employees’ parking qualified transportation fringe, the section 274(a)(4) disallowance generally is calculated as the taxpayer’s total annual cost of employee parking qualified transportation fringes paid to the third party.

(2) Taxpayer provides parking qualified transportation fringe at a parking facility it owns or leases. If a taxpayer owns or leases all or a portion of one or more parking facilities where its employees park, the section 274(a)(4) disallowance may be calculated using the general rule in paragraph (d)(2)(i) of this section or any of the simplified methodologies in paragraph (d)(2)(ii) of this section. A taxpayer may choose to use the general rule or any of the following methodologies for each taxable year and for each parking facility.

(i) General rule. A taxpayer that uses the general rule in this paragraph (d)(2)(i) must calculate the disallowance of deductions for qualified transportation fringe parking expenses for each employee receiving the qualified transportation fringe based on a reasonable interpretation of section 274(a)(4). A taxpayer that uses the general rule in this paragraph (d)(2)(i) may not use the special rule in paragraph (c)(1) of this section but may use the special rule in paragraph (c)(2) of this section. An interpretation of section 274(a)(4) is not reasonable unless the taxpayer applies the following rules when calculating the disallowance under this paragraph (d)(2)(i).

(A) A taxpayer must not use value to determine expense. A taxpayer may not use the value of employee parking to determine expenses allocable to employee parking that is either owned or leased by the taxpayer because section 274(a)(4) disallows a deduction for the expense of providing a qualified transportation fringe, regardless of its value.

(B) A taxpayer must not deduct expenses related to reserved employee spaces. A taxpayer must determine the allocable portion of total parking expenses that relate to any reserved employee spaces. No deduction is allowed for the parking expenses that relate to reserved employee spaces.

(C) A taxpayer must not improperly apply the exception for qualified parking made available to the public. A taxpayer must not improperly apply the exception in section 274(e)(7) or paragraph (e)(2)(ii) of this section to parking facilities, for example, by treating a parking facility regularly used by employees as available to the general public merely because the general public has access to the parking facility.

(ii) Additional simplified methodologies. Instead of using the general rule in paragraph (d)(2)(i) of this section for a taxpayer owned or leased parking facility, a taxpayer may use a simplified methodology under paragraph (d)(2)(ii)(A), (B), or (C) of this section.

(A) Qualified parking limit methodology. A taxpayer that uses the qualified parking limit methodology in this paragraph (d)(2)(ii)(A) must calculate the disallowance of deductions for qualified transportation fringe parking expenses by multiplying the total number of spaces used by employees during the peak demand period, or the total number of taxpayer’s employees, by the section 132(f)(2) monthly per employee limitation on exclusion (adjusted for inflation), for each month in the taxable year. The result is the amount of the taxpayer’s expenses that are disallowed under section 274(a)(4). This methodology may be used only if the taxpayer includes the value of the qualified transportation fringe in excess of the sum of the amount, if any, paid by the employee for the qualified transportation fringe and the applicable statutory monthly limit in section 132(f)(2) on the taxpayer’s Federal income tax return as originally filed as compensation paid to the employee and as wages to the employee for purposes of withholding under chapter 24 of the Code (relating to collection of Federal income tax at source on wages). In addition, the exception to the disallowance for amounts treated as employee compensation provided for in section 274(e)(2) and in paragraph (e)(2)(i) of this section cannot be applied to reduce a section 274(a)(4) disallowance calculated using this method. A taxpayer using this methodology may not use either of the special rules in paragraph (c) of this section.

(B) Primary use methodology. A taxpayer that uses the primary use methodology in this paragraph (d)(2)(ii)(B) must use the following four-step methodology to calculate the disallowance of deductions for qualified transportation fringe parking expenses for each parking facility. A taxpayer may use either or both of the special rules in paragraph (c) of this section for determining total parking expenses and total parking spaces.

(1) Step 1 - Calculate the disallowance for reserved employee spaces. A taxpayer must identify the total parking spaces in the parking facility, or the taxpayer’s portion thereof, exclusively reserved for the taxpayer’s employees. The taxpayer must then determine the percentage of reserved employee spaces in relation to total parking spaces and multiply that percentage by the taxpayer’s total parking expenses for the parking facility. The product is the amount of the deduction for total parking expenses that is disallowed under section 274(a)(4) for reserved employee spaces. There is no disallowance for reserved employee spaces if the primary use (as defined in paragraphs (b)(11) and (d)(2)(ii)(B)(2) of this section) of the available parking spaces is to provide parking to the general public, and there are five or fewer reserved employee spaces in the parking facility and the reserved employee spaces are 5 percent or less of the total parking spaces.

(2) Step 2 - Determine the primary use of available parking spaces. A taxpayer must identify the available parking spaces in the parking facility and determine whether their primary use is to provide parking to the general public. If the primary use of the available parking spaces in the parking facility is to provide parking to the general public, then total parking expenses allocable to available parking spaces at the parking facility are excepted from the section 274(a)(4) disallowance by the general public exception under section 274(e)(7) and paragraph (e)(2)(ii) of this section. Primary use of available parking spaces is based on the number of available parking spaces used by employees during the peak demand period. Nonreserved parking spaces that are available to the general public but empty during normal business hours on a typical business day are treated as provided to the general public.

(3) Step 3 - Calculate the allowance for reserved nonemployee spaces. If the primary use of a taxpayer’s available parking spaces is not to provide parking to the general public, the taxpayer must identify the number of available parking spaces in the parking facility, or the taxpayer’s portion thereof, exclusively reserved for nonemployees. A taxpayer that has no reserved nonemployee spaces may proceed to Step 4 in paragraph (d)(2)(ii)(B)(4) of this section. If the taxpayer has reserved nonemployee spaces, it may determine the percentage of reserved nonemployee spaces in relation to remaining total parking spaces and multiply that percentage by the taxpayer’s remaining total parking expenses. The product is the amount of the deduction for remaining total parking expenses that is not disallowed because the spaces are not available for employee parking.

(4) Step 4 - Determine remaining use of available parking spaces and allocable expenses. If a taxpayer completes Steps 1 - 3 in paragraph (d)(2)(ii)(B) of this section and has any remaining total parking expenses not specifically categorized as deductible or nondeductible, the taxpayer must reasonably allocate such expenses by determining the total number of available parking spaces used by employees during the peak demand period.

(C) Cost per space methodology. A taxpayer using the cost per space methodology in this paragraph (d)(2)(ii)(C) must calculate the disallowance of deductions for qualified transportation fringe parking expenses by multiplying the cost per space by the total number of available parking spaces used by employees during the peak demand period. The product is the amount of the deduction for total parking expenses that is disallowed under section 274(a)(4). A taxpayer may calculate cost per space by dividing total parking expenses by total parking spaces. A taxpayer using this methodology may use either or both of the special rules in paragraph (c) of this section for determining total parking expenses and total parking spaces.

(3) Expenses for transportation in a commuter highway vehicle or transit pass. If a taxpayer pays a third party an amount for its employees’ commuter highway vehicle or a transit pass qualified transportation fringe, the section 274(a)(4) disallowance generally is equal to the taxpayer’s total annual cost of employee commuter highway vehicle or a transit pass qualified transportation fringes paid to the third party. If a taxpayer provides transportation in a commuter highway vehicle or transit pass qualified transportation fringes in kind directly to its employees, the taxpayer must calculate the disallowance of deductions for expenses for such fringes based on a reasonable interpretation of section 274(a)(4). However, a taxpayer may not use the value of the qualified commuter highway vehicle or transit pass fringe to the employee to determine expenses allocable to such fringe because section 274(a)(4) disallows a deduction for the expense of providing a qualified transportation fringe, regardless of its value to the employee.

(e) Specific exceptions to disallowance of deduction for qualified transportation fringe expenses—(1) In general. The provisions of section 274(a)(4) and paragraph (a) of this section (imposing limitations on deductions for qualified transportation fringe expenses) are not applicable in the case of expenditures set forth in paragraph (e)(2) of this section. Such expenditures are deductible to the extent allowable under chapter 1 of the Code. This paragraph (e) cannot be construed to affect whether a deduction under section 162 or 212 is allowed or allowable. The fact that an expenditure is not covered by a specific exception provided for in this paragraph (e) is not determinative of whether a deduction for the expenditure is disallowed under section 274(a)(4) and paragraph (a) of this section.

(2) Exceptions to disallowance. The expenditures referred to in paragraph (e)(1) of this section are set forth in paragraphs (e)(2)(i) through (iii) of this section.

(i) Certain qualified transportation fringe expenses treated as compensation—(A) In general. Under section 274(e)(2) and this paragraph (e)(2)(i), any expense paid or incurred by a taxpayer for a qualified transportation fringe is not subject to the disallowance of deductions provided for in paragraph (a) of this section to the extent that the expense is treated by the taxpayer—

(1) On the taxpayer’s Federal income tax return as originally filed, as compensation paid to the employee; and

(2) As wages to the employee for purposes of withholding under chapter 24 (relating to collection of Federal income tax at source on wages).

(B) Limitation on exception. The exception in section 274(e)(2) and paragraph (e)(2)(i) of this section does not apply to expenses paid or incurred for qualified transportation fringes the value of which (including a purported value of zero) is less than the sum of the amount, if any, paid by the employee for the fringe benefits and any amount excluded from gross income under section 132(a)(5). Thus, if an employer provides an employee with qualified transportation fringes the value of which is less than the applicable statutory monthly per employee limit under section 132(a)(5), the exception in section 274(e)(2) and paragraph (e)(2)(i) of this section does not apply to expenses paid or incurred for the fringe benefits.

(C) Expenses for which value is improperly included. The exception in section 274(e)(2) and paragraph (e)(2)(i) of this section does not apply to expenses paid or incurred for qualified transportation fringes for which the value that is included in gross income of the employee is less than the amount required to be included in gross income under §1.61-21. Similarly, if the amount required to be included in gross income under §1.61-21 is purportedly zero, the exception in section 274(e)(2) and paragraph (e)(2)(i) of this section does not apply.

(D) Required inclusion in wages. The exception in section 274(e)(2) and paragraph (e)(2)(i) of this section applies to expenses paid or incurred for qualified transportation fringes the value of which exceeds the sum of the amount, if any, paid by the employee for the fringe benefits and any amount excluded from gross income under section 132(a)(5), if treated as compensation on the taxpayer’s Federal income tax return as originally filed and as wages to the employee for purposes of withholding under chapter 24. Thus, assuming no other statutory exclusion applies, if an employer provides an employee with qualified transportation fringes the value of which exceeds the applicable statutory monthly limit and the employee does not make any payment, the value of the benefits provided in excess of the applicable statutory monthly limit must be included in the employee’s wages for income and employment tax purposes in accordance with section 274(e)(2) and paragraph (e)(2)(i) of this section. See §1.61-21(b)(1) and §1.132-9(b), Q/A-8.

(ii) Expenses for transportation in a commuter highway vehicle, transit pass, or parking made available to the public. Under section 274(e)(7) and this paragraph (e)(2)(ii), any expense paid or incurred by a taxpayer for transportation in a commuter highway vehicle, a transit pass, or parking that otherwise qualifies as a qualified transportation fringe and that is also made available to the general public, is not subject to the disallowance of deductions provided for in paragraph (a) of this section to the extent that such transportation, transit pass, or parking is made available to the general public. With respect to parking, this exception applies to the entire amount of the taxpayer’s parking expense, less any expenses specifically attributable to employees (for example, expenses allocable to reserved employee spaces), if the primary use of the parking is by the general public. If the primary use of the parking is not by the general public, this exception applies only to the costs attributable to the parking used by the general public.

(iii) Expenses for transportation in a commuter highway vehicle, transit pass, or parking sold to customers. Under section 274(e)(8) and this paragraph (e)(2)(iii), any expense paid or incurred by a taxpayer for transportation in a commuter highway vehicle, a transit pass, or parking that otherwise qualifies as a qualified transportation fringe to the extent such transportation, transit pass, or parking is sold to customers in a bona fide transaction for an adequate and full consideration in money or money’s worth, is not subject to the disallowance of deductions provided for in paragraph (a) of this section. For purposes of this paragraph (e)(2)(iii), the term customer includes an employee of the taxpayer who purchases the transportation in a bona fide transaction for an adequate and full consideration in money or money’s worth.

(f) Examples. The following examples illustrate the provisions of this section related to parking expenses for qualified transportation fringes. For each example, assume the parking expenses are otherwise deductible expenses paid or incurred during the 2020 taxable year; all or some portion of the expenses relate to a qualified transportation fringe under section 132(f); the section 132(f)(2) monthly per employee limitation on an employee’s exclusion is $270; all taxpayers are calendar-year taxpayers; and the length of the 2020 taxable year is 12 months.

(1) Example 1. Taxpayer A pays B, a third party who owns a parking garage adjacent to A’s place of business, $100 per month per parking space for each of A’s 10 employees to park in B’s garage, or $12,000 for parking in 2020 (($100 x 10) x 12 = $12,000). The $100 per month paid for each of A’s 10 employees for parking is excludible under section 132(a)(5), and none of the exceptions in section 274(e) or paragraph (e) of this section are applicable. Thus, the entire $12,000 is subject to the section 274(a)(4) disallowance under paragraphs (a) and (d)(1) of this section.

(2) Example 2. (i) Assume the same facts as in paragraph (f)(1) of this section (Example 1), except A pays B $300 per month for each parking space, or $36,000 for parking for 2020 (($300 x 10) x 12 = $36,000). Of the $300 per month paid for parking for each of 10 employees, $270 is excludible under section 132(a)(5) for 2020 and none of the exceptions in section 274(e) or paragraph (e) of this section are applicable to this amount. A properly treats the excess amount of $30 ($300 - $270) per employee per month as compensation and wages. Thus, $32,400 (($270 x 10) x 12 = $32,400) is subject to the section 274(a)(4) disallowance under paragraphs (a) and (d)(1) of this section.

(ii) The excess amount of $30 per employee per month is not excludible under section 132(a)(5). As a result, the exceptions in section 274(e)(2) and paragraph (e)(2)(i) of this section are applicable to this amount. Thus, $3,600 ($36,000 - $32,400 = $3,600) is not subject to the section 274(a)(4) disallowance and remains deductible.

(3) Example 3. (i) Taxpayer C leases 200 parking spaces from a third party at a rate of $500 per space, per month in 2020. C’s annual lease payment for the parking spaces is $1,200,000 ((200 x $500) x 12 = $1,200,000). The number of available parking spaces used by C’s employees during the peak demand period is 200.

(ii) C uses the qualified parking limit methodology described in paragraph (d)(2)(ii)(A) of this section to determine the disallowance under section 274(a)(4). Under this methodology, the section 274(a)(4) disallowance is calculated by multiplying the number of available parking spaces used by employees during the peak demand period, 200, the section 132(f)(2) monthly per employee limitation on exclusion, $270, and 12, the number of months in the applicable taxable year. The amount subject to the section 274(a)(4) disallowance is $648,000 (200 x $270 x 12 = $648,000). This amount is excludible from C’s employees’ gross incomes under section 132(a)(5) and none of the exceptions in section 274(e) or paragraph (e) of this section are applicable to this amount. The excess $552,000 ($1,200,000 - $648,000) for which C is not disallowed a deduction under 274(a)(4) is included in C’s employees’ gross incomes because it exceeds the section 132(f)(2) monthly per employee limitation on exclusion.

(4) Example 4—(i) Facts. Taxpayer D, a big box retailer, owns a surface parking facility adjacent to its store. D incurs $10,000 of total parking expenses for its store in the 2020 taxable year. D’s parking facility has 510 spaces that are used by its customers, employees, and its fleet vehicles. None of D’s parking spaces are reserved. The number of available parking spaces used by D’s employees during the peak demand period is 50. Approximately 30 nonreserved parking spaces are empty during normal business hours on a typical business day. D’s fleet vehicles occupy 10 parking spaces.

(ii) Methodology. D uses the primary use methodology in paragraph (d)(2)(ii)(B) of this section to determine the amount of parking expenses that are disallowed under section 274(a)(4).

(iii) Step 1. Because none of D’s parking spaces are exclusively reserved for employees, there is no amount to be specifically allocated to reserved employee spaces under paragraph (d)(2)(ii)(B)(1) of this section.

(iv) Step 2. D’s number of available parking spaces is the total parking spaces reduced by the number of reserved employee spaces and inventory/unusable spaces or 500 (510 – 0 – 10 = 500). The number of available parking spaces used by D’s employees during the peak demand period is 50. Of the 500 available parking spaces, 450 are used to provide parking to the general public, including the 30 empty nonreserved parking spaces that are treated as provided to the general public. The primary use of D’s available parking spaces is to provide parking to the general public because 90% (450 / 500 = 90%) of the available parking spaces are used by the general public under paragraph (d)(2)(ii)(B)(2) of this section. Because the primary use of the available parking spaces is to provide parking to the general public, the exception in section 274(e)(7) and paragraph (e)(2)(ii) of this section applies and none of the $10,000 of total parking expenses is subject to the section 274(a)(4) disallowance.

(5) Example 5—(i) Facts. Taxpayer E, a manufacturer, owns a surface parking facility adjacent to its plant. E incurs $10,000 of total parking expenses in 2020. E’s parking facility has 500 spaces that are used by its visitors and employees. E reserves 25 of these spaces for nonemployee visitors. The number of available parking spaces used by E’s employees during the peak demand period is 400.

(ii) Methodology. E uses the primary use methodology in paragraph (d)(2)(ii)(B) of this section to determine the amount of parking expenses that are disallowed under section 274(a)(4).

(iii) Step 1. Because none of E’s parking spaces are exclusively reserved for employees, there is no amount to be specifically allocated to reserved employee spaces under paragraph (d)(2)(ii)(B)(1) of this section.

(iv) Step 2. The primary use of E’s parking facility is not to provide parking to the general public because 80% (400 / 500 = 80%) of the available parking spaces are used by its employees. Thus, expenses allocable to those spaces are not excepted from the section 274(a) disallowance by section 274(e)(7) and paragraph (e)(2)(ii) of this section under the primary use test in paragraph (d)(2)(ii)(B)(2) of this section.

(v) Step 3. Because 5% (25 / 500 = 5%) of E’s available parking spaces are reserved nonemployee spaces, up to $9,500 ($10,000 x 95% = $9,500) of E’s total parking expenses are subject to the section 274(a)(4) disallowance under this step as provided in paragraph (d)(2)(ii)(B)(3) of this section. The remaining $500 ($10,000 x 5% = $500) of expenses allocable to reserved nonemployee spaces is excepted from the section 274(a) disallowance and continues to be deductible.

(vi) Step 4. E must reasonably determine the employee use of the remaining parking spaces by using the number of available parking spaces used by E’s employees during the peak demand period and determine the expenses allocable to employee parking spaces under paragraph (d)(2)(ii)(B)(4) of this section.

(6) Example 6—(i) Facts. Taxpayer F, a manufacturer, owns a surface parking facility adjacent to its plant. F incurs $10,000 of total parking expenses in 2020. F’s parking facility has 500 spaces that are used by its visitors and employees. F reserves 50 spaces for management. All other employees park in nonreserved spaces in F’s parking facility; the number of available parking spaces used by F’s employees during the peak demand period is 400. Additionally, F reserves 10 spaces for nonemployee visitors.

(ii) Methodology. F uses the primary use methodology in paragraph (d)(2)(ii)(B) of this section to determine the amount of parking expenses that are disallowed under section 274(a)(4).

(iii) Step 1. Because F reserved 50 spaces for management, $1,000 ((50 / 500) x $10,000 = $1,000) is the amount of total parking expenses that is nondeductible for reserved employee spaces under section 274(a)(4) and paragraphs (a) and (d)(2)(ii)(B)(1) of this section. None of the exceptions in section 274(e) or paragraph (e) of this section are applicable to this amount.

(iv) Step 2. The primary use of the remainder of F’s parking facility is not to provide parking to the general public because 89% (400 / 450 = 89%) of the available parking spaces in the facility are used by its employees. Thus, expenses allocable to these spaces are not excepted from the section 274(a)(4) disallowance by section 274(e)(7) and paragraph (e)(2)(ii) of this section under the primary use test in paragraph (d)(2)(ii)(B)(2) of this section.

(v) Step 3. Because 2% (10 / 450 = 2.22%) of F’s available parking spaces are reserved nonemployee spaces, the $180 allocable to those spaces (($10,000 - $1,000) x 2%) is not subject to the section 274(a)(4) disallowance and continues to be deductible under paragraph (d)(2)(ii)(B)(3) of this section.

(vi) Step 4. F must reasonably determine the employee use of the remaining parking spaces by using the number of available parking spaces used by F’s employees during the peak demand period and determine the expenses allocable to employee parking spaces under paragraph (d)(2)(ii)(B)(4) of this section.

(7) Example 7—(i) Facts. Taxpayer G, a financial services institution, owns a multi-level parking garage adjacent to its office building. G incurs $10,000 of total parking expenses in 2020. G’s parking garage has 1,000 spaces that are used by its visitors and employees. However, one floor of the parking garage is segregated by an electronic barrier that can only be accessed with a card provided by G to its employees. The segregated parking floor contains 100 spaces. The other floors of the parking garage are not used by employees for parking during the peak demand period.

(ii) Methodology. G uses the primary use methodology in paragraph (d)(2)(ii)(B) of this section to determine the amount of parking expenses that are disallowed under section 274(a)(4).

(iii) Step 1. Because G has 100 reserved spaces for employees, $1,000 ((100 / 1,000) x $10,000 = $1,000) is the amount of total parking expenses that is nondeductible for reserved employee spaces under section 274(a)(4) and paragraph (d)(2)(ii)(B)(1) of this section. None of the exceptions in section 274(e) or paragraph (e) of this section are applicable to this amount.

(iv) Step 2. The primary use of the available parking spaces in G’s parking facility is to provide parking to the general public because 100% (900 / 900 = 100%) of the available parking spaces are used by the public. Thus, expenses allocable to those spaces, $9,000, are excepted from the section 274(a)(4) disallowance by section 274(e)(7) and paragraph (e)(2)(ii) of this section under the primary use test in paragraph (d)(2)(ii)(B)(2).

(8) Example 8—(i) Facts. Taxpayer H, an accounting firm, leases a parking facility adjacent to its office building. H incurs $10,000 of total parking expenses related to the lease payments in 2020. H’s leased parking facility has 100 spaces that are used by its clients and employees. None of the parking spaces are reserved. The number of available parking spaces used by H’s employees during the peak demand period is 60.

(ii) Methodology. H uses the primary use methodology in paragraph (d)(2)(ii)(B) of this section to determine the amount of parking expenses that are disallowed under section 274(a)(4).

(iii) Step 1. Because none of H’s leased parking spaces are exclusively reserved for employees, there is no amount to be specifically allocated to reserved employee spaces under paragraph (d)(2)(ii)(B)(1) of this section.

(iv) Step 2. The primary use of H’s leased parking facility under paragraph (d)(2)(ii)(B)(2) of this section is not to provide parking to the general public because 60% (60 / 100 = 60%) of the lot is used by its employees. Thus, H may not utilize the general public exception from the section 274(a)(4) disallowance provided by section 274(e)(7) and paragraph (e)(2)(ii) of this section.

(v) Step 3. Because none of H’s parking spaces are exclusively reserved for nonemployees, there is no amount to be specifically allocated to reserved nonemployee spaces under paragraph (d)(2)(ii)(B)(3) of this section.

(vi) Step 4. H must reasonably determine the use of the parking spaces and the related expenses allocable to employee parking. Because the number of available parking spaces used by H’s employees during the peak demand period is 60, H reasonably determines that 60% (60 / 100 = 60%) of H’s total parking expenses or $6,000 ($10,000 x 60% = $6,000) is subject to the section 274(a)(4) disallowance under paragraph (d)(2)(ii)(B)(4) of this section.

(9) Example 9—(i) Facts. Taxpayer I, a large manufacturer, owns multiple parking facilities adjacent to its manufacturing plant, warehouse, and office building at its complex in the city of X. All of I’s tracts or parcels of land at its complex in city X are located in a single geographic location. I owns parking facilities in other cities. I incurs $50,000 of total parking expenses related to the parking facilities at its complex in city X in 2020. I’s parking facilities at its complex in city X have 10,000 total parking spaces that are used by its visitors and employees of which 500 are reserved for management. All other spaces at parking facilities in I’s complex in city X are nonreserved. The number of nonreserved spaces used by I’s employees other than management during the peak demand period at I’s parking facilities in city X is 8,000.

(ii) Methodology. I uses the primary use methodology in paragraph (d)(2)(ii)(B) of this section to determine the amount of parking expenses that are disallowed under section 274(a)(4). I chooses to apply the special rule in paragraph (c)(2) of this section to aggregate all parking facilities in the geographic location that comprises its complex in city X. However, I may not aggregate parking facilities in other cities with its parking facilities in city X because they are in different geographic locations.

(iii) Step 1. Because 500 spaces are reserved for management, $2,500 ((500 / 10,000) x $50,000 = $2,500) is the amount of total parking expenses that is nondeductible for reserved employee spaces for I’s parking facilities in city X under section 274(a)(4) and paragraphs (a) and (d)(2)(ii)(B)(1) of this section.

(iv) Step 2. The primary use of the remainder of I’s parking facility is not to provide parking to the general public because 84% (8,000 / 9,500 = 84%) of the available parking spaces in the facility are used by its employees. Thus, expenses allocable to these spaces are not excepted from the section 274(a)(4) disallowance by section 274(e)(7) or paragraph (e)(2)(ii) of this section under the primary use test in paragraph (d)(2)(ii)(B)(2) of this section.

(v) Step 3. Because none of I’s parking spaces in its parking facilities in city X are exclusively reserved for nonemployees, there is no amount to be specifically allocated to reserved nonemployee spaces under paragraph (d)(2)(ii)(B)(3) of this section.

(vi) Step 4. I must reasonably determine the use of the remaining parking spaces and the related expenses allocable to employee parking for its parking facilities in city X. Because the number of available parking spaces used by I’s employees during the peak demand period in city X during an average workday is 8,000, I reasonably determines that 84.2% (8,000 / 9,500 = 84.2%) of I’s remaining parking expense or $39,900 (($50,000 - $2,500) x 84% = $39,900) is subject to the section 274(a)(4) disallowance under paragraph (d)(2)(ii)(B)(4) of this section.

(10) Example 10. (i) Taxpayer J, a manufacturer, owns a parking facility and incurs mixed parking expenses along with other parking expenses. J uses the special rule in paragraph (c)(1) of this section to allocate 5% of certain mixed parking expenses to its parking facility. Applying the special rule, J determines that it incurred $100,000 of total parking expenses in 2020. J’s parking facility has 500 spaces that are used by its visitors and employees. The number of available parking spaces used by J’s employees during the peak demand period is 475.

(ii) J uses the cost per space methodology described in paragraph (d)(2)(ii)(C) of this section to determine the amount of parking expenses that are disallowed under section 274(a)(4). Under this methodology, J multiples the cost per space by the number of available parking spaces used by J’s employees during the peak demand period. J calculates the cost per space by dividing total parking expenses by the number of parking spaces ($100,000 / 500 = $200). J determines that $95,000 ($200 x 475 = $95,000) of J’s total parking expenses is subject to the section 274(a)(4) disallowance and none of the exceptions in section 274(e) or paragraph (e) of this section are applicable.

(g) Applicability date. This section applies for taxable years that begin on or after [date final rule is published in the Federal Register].

§1.274-14 Disallowance of deductions for certain transportation and commuting benefit expenditures.

(a) General rule. Except as provided in this section, no deduction is allowed for any expense incurred for providing any transportation, or any payment or reimbursement, to an employee of the taxpayer in connection with travel between the employee’s residence, as defined in §1.121-1(b)(1), and place of employment. Travel between the employee’s residence and place of employment includes travel that originates at a transportation hub near the employee’s residence or place of employment. For example, an employee who commutes to work by airplane from an airport near the employee’s residence to an airport near the employee’s place of employment is traveling between the residence and place of employment. These transportation and commuting expenses do not include any expenditure of any qualified transportation fringe (as defined in section 132(f)) provided to an employee of the taxpayer. All qualified transportation fringe expenses are required to be analyzed under section 274(a)(4) and §1.274-13.

(b) Exception. The disallowance for the deduction for expenses incurred for providing any transportation or commuting in paragraph (a) of this section does not apply if the transportation or commuting expense is necessary for ensuring the safety of the employee. The transportation or commuting expense is necessary for ensuring the safety of the employee if a bona fide business-oriented security concern, as described in §1.132-5(m), exists for the employee.

(c) Applicability date. This section applies for taxable years that begin on or after [date final rule is published in the Federal Register].

Sunita Lough

Deputy Commissioner for Services and Enforcement.

(Filed by the Office of the Federal Register on June 19, 2020, 4:15 p.m., and published in the issue of the Federal Register for June 23, 2020, 85 FR 37599)

1 Form 8915-E is expected to be available before the end of 2020.