Demystifying IRS Form 990-T: What Nonprofits Should Know

Form 990 T is a type of Form 990, which is a public document that tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations are required to file with the IRS annually.

It provides information about an organization’s finances, governance, programs, and other compliance requirements so that they can maintain their tax-exempt status.

There are five different types of Form 990s, each with different requirements and purposes:

• Form 990
• Form 990-BL
• Form 990-EZ
• Form 990-N
• Form 990-T

The 990 T form is specifically used in the following circumstances to:

• Report unrelated business income
• Figure unrelated business income and tax liability
• Report proxy tax liability
• Claim a refund of income tax paid by a regulated investment company or real estate investment trust on undistributed long-term capital gain
• Request credit for certain federal excise taxes paid or for small employer health insurance premiums paid
• Report unrelated business income tax on reinsurance entities

‍Basically, if a nonprofit earns income that’s not related to their exempt purpose, they need to report it to the IRS, and they use this form to do so.

In order to qualify to file the 990 T Form, you must meet the following criteria:

Organizations with Current Unrelated Business Taxable Income (UBTI): Any disregarded entity (domestic or foreign) exempt under section 501(a) section 529 (a) or section 529A(a) with a gross income of $1,000 or more.

This could include:

• Colleges and universities that are affiliated with state and other governments
• Tuition programs
• Qualifying IRAs and retirement funds

Not all nonprofits are required to file the Form 990-T.

When Form 990-T is due depends on the type of organization filing and when your fiscal year ends.

• 15th day of the 4th month: Employee trusts as defined in section 401(a), including IRA, Roth IRA, Coverdell ESA, or Marcher MSA.
• 15th day of the 5th month: All other qualifying organizations.

If the date falls on a weekend or legal holiday, you can extend the deadline to the following business day.

Here’s all you need to know about each section of Form 990 T to help you fill it out.

1. Enter Basic Information

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The form starts with basic identifying information, including:

• Dates of your tax year
• Organization name and type
• EIN and group exemption number
• Address
• Accountant name and contact information

It’s critical that you do not add SSN numbers as this document will be made publicly available.

2. Part I: Total Unrelated Business Taxable Income

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Fill out all information needed to determine your total unrelated business taxable income. Enter 0 if the line item does not apply.

3. Part II: Tax Computation

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Here is where you will calculate all the taxes you owe, so be sure to follow the instructions to ensure you are adding the right figures.

4. Part III: Tax and Payments

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Include additional tax and payments in this section, including any amounts due from other forms. If it does not apply, make sure to enter 0 on the line. This should include both the tax you need to pay and anything you would like credited or refunded.

5. Part IV: Statements Regarding Certain Activities and Other Information

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You need to answer two yes or no questions, and depending on the answer, you will need to calculate additional figures. Select if they should be reserved for future use.

6. Supplemental Information

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Enter any additional information needed and sign and date the form for submission.

Select 990 forms are available to file online, including the Form 990 T. To file, you need to complete the following steps.

1. Fill out the exempt organization business income tax return. You can find the current version of the form here.
2. Locate an IRS 990 e-file provider. You can find a complete list on the IRS website here. It is updated with new providers as available.
3. Share your documentation with the e-file provider.
4. The tax professional will file on your behalf, and make sure you keep a copy for your records.

You must file your 990 T Form electronically. As of July 2019, it is no longer accepted via paper.

Eligibility to File 990-T Form

If you have at least $1,000 or more of unrelated business income, you should file a Form 990 T.

This could be:

• Unrelated business income
• Tax liability
• Proxy tax liability
• Refund of income tax paid by a RIC or REIT on undistributed long-term capital gain
• Credit for federal excise taxes paid
• Credit for small employer health insurance premiums paid
• Unrelated business income tax on reinsurance entities

Not all nonprofits are required to file this form.

Online Filing of 990-T Form

Organizations are required to file their 990 T Form online. The IRS provides a list of approved partners who you can work with to e-File your tax return at the end of the year.

Deadline for Filing 990-T Form

The deadline to file the 990 T Form is either:

• 15th day of the 4th month after the taxable year (employee trusts)
• 15th day of the 5th month after the taxable year (all other qualifying organizations)

You can file for an extension if needed by using Form 8868, and this will avoid penalties.

Consequences of Failing to File 990-T Form

If you do not file your return on time or pay your taxes on time, you could be subject to interest and fines. You could receive a penalty of 5% of the unpaid taxes for each month you don’t pay, up to a 25% maximum of the unpaid taxes.

At a minimum, if you do not pay within 60 days, you will be charged the smaller of the tax due or $450.

Correction of Errors on the 990-T Form

You may file an amended return if you notice any errors on your previous report. Simply check box F on the document, which indicates that this Form 990 T is an amended return.

You will need to share what lines were amended and why, and you have three years to correct your form.

As you think about filing your 990 T Form, keep the following best practices in mind.

Preparing the Necessary Information

Make sure that you have all the information at hand when you start to fill out your Form 990 T. An additional best practice would be to keep your information organized and in a centralized location throughout the year so you don’t need to search for it.

Checking for Accuracy

Verify that all of your information is accurate. While you can file an amended return, it’s best that your information is correct the first time.

Donors can look up these forms to help learn more about your organization, so if something is incorrect, they may get the wrong picture—or worse, be unable to find you.

Ensuring Timely Submission

It is critical that you file your 990 on time. If you don’t, you will be subject to a penalty. Depending on how late you are, it can add up quickly—up to 25% of the unpaid tax. That could be devastating for your budget, so it’s best to avoid it or file for an extension if you know you’ll need to be late in advance.

Keeping a Copy for Record-keeping

Because you’re filing digitally, make sure to keep a copy for your records. This will help you look back to ensure all is correct if a problem arises, as well as help you with record keeping.

Even with the best intentions, some nonprofits still make mistakes when filing their 990 T Form. Here are some common mistakes to avoid.

Filing With Incorrect Information

Take your time when completing the form. One of the most common mistakes is incorrect information and typos. This will not look good to potential funders if they look up your form—if they’re even able to find it! It indicates a lack of attention to detail and could paint a false narrative of your organization.

Late Filing

The deadline may seem arbitrary—after all, it’s rolling based on your end date. However, if you file late, you will be subject to penalties and interest.

Not Filing at All

If you keep putting off filing, it may seem easier to simply not file. That’s not true. On the contrary, you will simply need to pay a larger penalty when you do file.

Incorrect Calculation of Gross Receipts

Having wrong information, especially with your gross receipts, can have serious implications. You may be paying too little in taxes or showing an incomplete picture of your organization’s operations. Both can have serious consequences in the long term.

Form 990 T is an important tax document that select nonprofits have to file if they need to report unrelated business income.

Failure to file this form could lead to costly penalties, so it’s critical that you make sure you don’t overlook this important step.

Instrumentl has many resources, webinars, and trainings available to help nonprofits navigate the space and land your next grant. Sign up today for your free, 14-day trial!