John Napoli and Janessa Griffin Published in the New York Law Journal
“Is Parking Lot Revenue for Tax-Exempt Organizations Business Income?”

An article by John Napoli, co-managing partner of Seyfarth’s New York office, and associate Janessa Griffin was published in the New York Law Journal on September 13. According to John and Janessa, most organizations that are exempt from tax under Section 401(a) or 501(c) of the Internal Revenue Code are subject to tax on their unrelated trade or business income (UBTI). The article discusses recent interpretations of Internal Revenue Code Section 512(b)(3)(A)(i), which excludes from UBTI all "rents from real property." John and Janessa write that “a historically contentious issue has been when, and under what circumstances, does income for parking facilities constitute ‘rents from real property.’"

Over the past 20 years, courts have issued contradictory opinions on this matter. Most recently, the U.S. Tax Court rendered a verdict in Ocean Pines Association Inc. v. Commissioner which declared that parking lot income earned by a tax-exempt homeowners association qualified as UBTI.

“As long as Ocean Pines is good law, tax-exempt organizations cannot be certain that revenues from ‘typical’ self-parking lots can qualify as rents from real property, and thus avoid classification as UBTI. Certainly after 60 years, taxpayers deserve clear and consistent guidance in this area,” commented the authors.