IRS 990-T Explained

What is IRS 990-T?

IRS 990-T is a tax form used by certain organizations to report unrelated business income. This form is specifically designed for tax-exempt organizations, enabling them to calculate and report taxes owed on this income. Individuals, partnerships, and corporations may also file this form under certain conditions. Understanding IRS 990-T is essential for compliance with tax laws regarding non-related business activities.

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Purpose of IRS 990-T

The primary purpose of IRS 990-T is to ensure that tax-exempt organizations pay taxes on income generated from activities not directly related to their primary exempt purpose. This form helps the IRS identify and tax this unrelated business income appropriately. It supports legal reporting requirements and ensures tax compliance among exempt organizations. It also provides a means for organizations to maintain their tax-exempt status while engaging in other business activities.

Where is IRS 990-T used and by whom?

IRS 990-T is commonly used by the following groups:

1.

Tax-exempt organizations, such as charities and nonprofits, when they earn income from activities outside their primary mission.
2.

Individuals who may be subject to unrelated business income tax (UBIT) under certain circumstances.
3.

Businesses that operate under one of the tax-exempt entities or are related to such organizations.

Typical scenarios include:

1.

A nonprofit running a cafe that generates substantial income apart from its charitable activities.
2.

A university charging for commercial research services that are unrelated to its educational goals.
3.

Charitable organizations receiving rental income from property not used for exempt purposes.

Step-by-step: how to fill out IRS 990-T

Filling out IRS 990-T can seem daunting, but here’s a step-by-step guide to simplify the process:

1.

Gather necessary information about your unrelated business income and expenses.
2.

Begin with Part I, where you report your unrelated business income. Include all revenue sources.
3.

Move to Part II, where you detail allowable deductions. Make sure to support each deduction with documentation.
4.

Complete Part III to calculate your taxable income by subtracting total deductions from total income.
5.

Follow through to Parts IV and V, where you provide your organizational details and summary of tax credits, if applicable.

Consider using pdfFiller to complete your IRS 990-T form easily online. Their platform allows for convenient editing and signing of PDF documents, simplifying the overall process.

Who is required to complete IRS 990-T?

Organizations that are required to complete IRS 990-T typically include tax-exempt entities that generate more than $1,000 in gross income from unrelated business activities. This requirement covers various types of nonprofit organizations, including:

1.

501(c)(3) charitable organizations.
2.

501(c)(4) social welfare organizations.
3.

501(c)(6) trade associations.

Individuals must also file IRS 990-T if they have income from a business carrying on unrelated trade or business activities, which can sometimes apply to hobby income or certain investments.

Information you need to complete IRS 990-T

To successfully fill out IRS 990-T, you will need to gather the following information:

1.

Your organization's name, address, and Employer Identification Number (EIN).
2.

A detailed accounting of all unrelated business income, including types and amounts.
3.

Records of allowable deductions directly related to the income generated, such as expenses incurred.
4.

Any tax credits your organization may qualify for and prior year forms if applicable.

How to submit IRS 990-T

IRS 990-T can be submitted in several ways:

1.

Online through the IRS e-file system, which is highly recommended for faster processing.
2.

By mail to the appropriate IRS address provided in the form instructions.

Be aware of important deadlines; generally, IRS 990-T is due on the 15th day of the fifth month after the end of the organization’s tax year, with extensions available under certain conditions.

When to update or refile IRS 990-T

There are specific situations where you will need to update or refile IRS 990-T:

1.

If there are changes to your unrelated business income affecting your taxable amount.
2.

In case of corrections in the reported figures such as deductions or organization information.
3.

If your organization undergoes structural changes like a merger or dissolution that impacts the filing.

What happens if you don’t file IRS 990-T?

Failing to file IRS 990-T can lead to significant consequences:

1.

You may face penalties due to late submission or failure to file.
2.

Potential loss of tax-exempt status, affecting your organization's ability to operate legally without tax obligations.
3.

Increased scrutiny and audits from the IRS.

It is crucial to adhere to filing requirements to avoid these legal and financial repercussions.

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Frequently Asked Questions About the IRS 990-T

What is the IRS 990-T form?

The IRS 990-T form is a tax return specifically for certain tax-exempt organizations. This form is used to report unrelated business income, that is, income earned from a regularly carried business that is not substantially related to the organization's exempt purpose. Filing an IRS 990-T is essential to ensure compliance with IRS regulations for non-profit entities.

Who needs to file an IRS 990-T?

Organizations that are tax-exempt under Section 501(c)(3) or other sections of the Internal Revenue Code must file IRS 990-T if they generate unrelated business income. This filing requirement applies regardless of the amount of income earned; even minimal earnings can trigger the need for a 990-T. Additionally, private foundations and some 527 organizations may also have filing requirements with IRS 990-T.

What constitutes unrelated business income for IRS 990-T?

Unrelated business income for IRS 990-T includes any revenue from a trade or business that is not substantially related to the organization’s tax-exempt purpose. This can include activities such as operating a gift shop or engaging in advertising if those activities are not aligned with the entity’s mission. It’s important for organizations to carefully delineate which income is subject to IRS 990-T to avoid penalties.

When is the IRS 990-T due?

The IRS 990-T is generally due on the 15th day of the 5th month after the close of the organization’s tax year. For most organizations operating on a calendar year basis, this means the form is due by May 15. If additional time is needed, organizations can file for an extension, which can provide up to six additional months to submit the IRS 990-T.

What are the penalties for not filing IRS 990-T?

Failing to file IRS 990-T can result in significant penalties for tax-exempt organizations. The IRS may impose a late filing penalty, which can range depending on how long the return is past due. Additionally, failing to file can jeopardize an organization’s tax-exempt status, exposing it to further legal repercussions and financial liabilities.

How can I prepare for filing IRS 990-T?

Preparing for IRS 990-T includes gathering all financial records related to unrelated business income. Organizations should calculate their total income and expenses associated with these activities and ensure that they accurately report this financial data. Using tools like pdfFiller can assist in organizing documents and streamlining the submission process for IRS 990-T.

Can states impose additional taxes on IRS 990-T income?

Yes, states may impose additional taxes on the income reported under IRS 990-T. Some states have their own versions of the unrelated business income tax, which can add another layer of complexity for tax-exempt organizations. It’s crucial for organizations to understand both federal and state tax obligations to remain in compliance.

What expenses can be deducted on the IRS 990-T?

Organizations filing IRS 990-T can deduct ordinary and necessary expenses that are directly connected to the generation of unrelated business income. This may include costs for advertising, rent, employee salaries, and material costs related to the business activities. Properly documenting these expenses is vital for maximizing deductions and ensuring accurate filings.

Where can I find IRS 990-T forms and instructions?

IRS 990-T forms and detailed instructions can be accessed directly from the IRS website. Alternatively, pdfFiller provides downloadable templates and an online platform to help streamline the completion and submission of IRS 990-T. Utilizing such resources can simplify the process and ensure all required fields are filled accurately.

What are the most common mistakes to avoid while filing IRS 990-T?

Common mistakes while filing IRS 990-T include underreporting income and failing to account for all unrelated business activities. Organizations sometimes overlook permissible deductions, which can lead to higher tax liabilities. It is essential to review the form thoroughly and, if necessary, consult a tax professional to ensure all information is correct.

Author:

by Iryna Marchuk

Lead Writer/Blogs Manager at airSlate

Disclaimer: This content is for informational purposes only. It is not legal or other professional advice. airSlate provides this material on an "as-is" basis and disclaims all representations, guarantees, or warranties, whether express, implied, or statutory, including but not limited to warranties of merchantability, fitness for a particular purpose, or accuracy.