Form 990-T preparation for unrelated business income

Tax-exempt status covers income connected to your exempt purpose. It doesn't cover income from a business you carry on regularly that has nothing to do with that purpose. That income is unrelated business taxable income (UBTI), and Form 990-T is where it is reported and the tax computed.

This service is for any exempt organization with income that might fall on the wrong side of that line: a membership association selling advertising in its magazine, a museum with a café, a school renting its field to outside leagues, a foundation invested in partnerships that run active businesses. Churches and others excused from the annual information return still file the 990-T when it applies. Our Form 990-T guide and examples of unrelated business income cover the background.

What's included

• A UBTI analysis. We look at each income stream against the three questions that matter: is it a trade or business, is it regularly carried on, and is it substantially related to your exempt purpose. We apply the exceptions that often remove income from tax, such as volunteer-run activities, sales of donated goods, and qualified sponsorship acknowledgments as distinct from paid advertising.
• The $1,000 test. Gross income for this purpose is gross receipts minus cost of goods sold, before other expenses, so a money-losing activity can still require a return.
• Separate business silos. Each unrelated trade or business is computed on its own Schedule A (Form 990-T), identified by its two-digit NAICS code, so a loss in one generally can't offset a profit in another.
• Expense allocation. Shared costs such as staff, space and overhead are allocated on a reasonable, consistent basis, and directly connected expenses are deducted.
• Deductions including the $1,000 specific deduction and net operating losses carried forward by silo.
• Estimated tax for the coming year when it is required.
• Form 8868 for the 990-T, filed separately from any extension of your 990.
• E-filing, the IRS acceptance and, for 501(c)(3)s, a public-inspection copy.
• A pointer to state returns. Many states that tax corporate income also tax unrelated business income; we identify which state returns your activity may trigger.

What we need from you

• Your Form 990, 990-EZ or 990-N for the year, or the financial statements behind it
• Revenue and expense detail for each activity that might be unrelated, with cost of goods sold where products are sold
• Advertising contracts or rate cards, and sponsorship agreements, so we can tell the two apart
• Rental agreements, with any mortgage or loan on the rented property
• Schedules K-1 from partnerships and LLCs the organization invests in
• Payroll, space and overhead figures needed to allocate shared costs
• Prior Forms 990-T, including any net operating loss carryforwards
• Estimated tax payments made during the year

How it works

1. Short consultation about your income sources and whether a 990-T was filed before.
2. Fixed quote and checklist. Nothing starts until you approve.
3. UBTI analysis and preparation, with an extension filed if needed.
4. Review with you. We explain which income is taxable, which isn't, and why.
5. Your signature. An officer signs Form 8879-TE electronically.
6. E-filed and confirmed, with any estimated payments for the next year set out.

Deadlines to know

For exempt corporations and most trusts, Form 990-T is due on the 15th day of the 5th month after year end. Employees' trusts under section 401(a) and IRAs file by the 15th day of the 4th month. Form 8868 gives an automatic six-month extension to file, not to pay: tax is due by the original date. Estimated tax is paid in quarterly installments when the expected tax is $500 or more. See due dates and extensions.

When this gets more complex

• Sponsorship or advertising? Wording and benefits given to the sponsor decide it. We review the agreements.
• Debt-financed property. Rental income from property bought with a loan can be partly taxable even when ordinary rents are excluded.
• Partnership investments, where K-1 detail decides the silo and the amount.
• Several activities with losses in some and profits in others.
• Past years never filed. We prepare prior 990-Ts and explain any notices; see late returns.

990IRS.com is a private company, not the IRS. This page is general information, not legal or tax advice for your organization. Example organizations and figures are hypothetical.