Notice 2018-99 provides a four-step

method deemed to be a reasonable method for calculating the amount of parking expenses that is nondeductible under section 274(a)(4).

i. Step 1

First, the taxpayer calculates the disallowance for reserved employee spaces. A taxpayer that owns or leases all or a portion of one or more parking facilities must identify the number of spaces in the parking facility, or the taxpayer’s portion thereof, exclusively reserved for the taxpayer’s employees (reserved employee spaces). 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.

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.

ii. Step 2

Second, the taxpayer determines the primary use of remaining spaces (primary use test). The taxpayer may identify the remaining 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 remaining parking spaces in the parking facility is to provide parking to the general public, then the remaining total parking expenses for the parking facility are excepted from the section 274(a) disallowance by the general public exception under section 274(e) (7).

For purposes of calculating the disallowance, the term “primary use” means greater than 50 percent of actual or estimated usage of the parking spaces in the parking facility. Primary use of the parking spaces is tested during normal business hours on a typical business day. 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. In addition, if the actual or estimated usage of the parking spaces varies significantly between days of the week or times of the year, the taxpayer may use any reasonable method to determine the average actual or estimated usage.

For purposes of Notice 2018-99, 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, patients of a health care facility, and congregants of a religious organization. As noted in part 1 of the Background, section 512(a)(7) was retroactively repealed, therefore “congregants of a religious organization” is not included in the definition of the “general public” in

July 6, 2020 46 Bulletin No. 2020–28

these proposed regulations. The general public does not include employees, partners, 2-percent shareholders of S corporations, or independent contractors of the taxpayer.

iii. Step 3

Third, the taxpayer calculates the allowance for reserved nonemployee spaces. If the primary use of a taxpayer’s remaining parking spaces is not to provide parking to the general public, the taxpayer may identify the number of spaces in the parking facility, or the taxpayer’s portion thereof, exclusively reserved for nonemployees (reserved nonemployee spaces). For example, reserved nonemployee spaces include spaces reserved for visitors and customers, as well as spaces reserved for partners, sole proprietors, and 2-percent shareholders of S corporations.