Form 990-T Filing Checklist for Tax Year 2020
Overview and Applicability
The 2020 Form 990-T underwent a significant redesign, introducing Schedule A for reporting each separate unrelated trade or business. The Tax Cuts and Jobs Act provisions remain in effect, applying a 21% flat corporate tax rate to unrelated business taxable income for organizations taxable as corporations.
The CARES Act, enacted in March 2020, modified net operating loss rules, allowing NOLs arising in 2018, 2019, or 2020 to be carried back five years and temporarily suspending the 80% taxable income limitation for those years. Form 990-T does not apply to Economic Impact Payment reconciliation, ACA shared responsibility payments, or unemployment exclusion adjustments.
Tax-exempt organizations under sections 501(c), 401(a), 408(e), 408A, 529(a), 220(e), or 530(a) with unrelated business taxable income must file Form 990-T. Organizations conduct unrelated trades or businesses when their activities produce income that is not substantially related to their exempt purposes.
Each separate, unrelated trade or business requires a distinct Schedule A computation, with results aggregating on the main form. Trusts use graduated trust tax rates rather than the 21% corporate rate, computing tax in accordance with the Schedule D instructions from Form 1041, when applicable.
Ten-Step Filing Process
Step 1: Identify Organization Type and Unrelated Business Activities
Verify the organization’s tax-exempt status under the applicable Internal Revenue Code section and enter it on the form header. Determine whether the organization is taxable as a corporation or trust, as this affects tax computation. Identify and list all separate, unrelated trades or businesses conducted during 2020.
Enter the total number of unrelated trades or businesses in item H of the form header. Each activity constitutes a separate, unrelated trade or business, requiring its own Schedule A, unless the activities are properly aggregated under partnership rules or constitute a single, integrated business.
Step 2: Gather Documentation for Each Unrelated Business
Collect comprehensive records for each unrelated trade or business, including gross receipts, invoices, sales records, returns and allowances documentation, and bank statements. Obtain cost of goods sold documentation with beginning inventory, purchases, labor costs, section 263A additional costs, other costs, and ending inventory records.
Gather expense documentation, including compensation records with Form W-2s and Schedule K information for officers and directors, repair and maintenance invoices, bad debt calculations and aging schedules, interest expense documentation with loan schedules, tax and license payment records, depreciation schedules with Form 4562, depletion calculations, deferred compensation contribution records, and employee benefit program costs.
Collect partnership Schedule K-1 forms, rental agreements, debt-financed property records, and controlled organization payment documentation. Maintain separate files for each unrelated business activity.
Step 3: Complete Schedule A for Each Unrelated Trade or Business
Prepare a separate Schedule A for each unrelated trade or business identified. Part I of Schedule A reports unrelated business income, including gross receipts or sales less returns and allowances, cost of goods sold from the cost of goods sold worksheet, gross profit, capital gains and losses with Schedule D attached, net gain or loss from Form 4797, income from partnerships and S corporations, rental income, unrelated debt-financed income, interest and dividends from controlled organizations, investment income for section 501(c)(7), (9), or (17) organizations, exploited exempt activity income, advertising income, and other trade or business income. Sum all income categories to determine the total income for that specific business.
Part II of Schedule A captures deductions not taken elsewhere that are directly connected with the unrelated business income from Part I. Report compensation of officers, directors, and trustees documented on a compensation schedule, salaries and wages, repairs and maintenance, bad debts, interest with attached schedules, taxes and licenses, depreciation from Form 4562 less amounts claimed elsewhere, depletion, contributions to deferred compensation plans, employee benefit programs, and other deductions with schedules attached. Total all Part II deductions.
Calculate unrelated business income before specific deduction by subtracting total deductions from total income. Apply the specific deduction, generally equal to $1,000, unless the organization is part of a controlled group, in which case the deduction must be allocated among its members. Compute unrelated business taxable income for this specific business on Schedule A.
Step 4: Apply Net Operating Loss Deductions on Schedule A
Determine whether net operating losses from prior years are available for deduction. For 2020, the CARES Act significantly modified NOL rules. NOLs arising in tax years beginning in 2018, 2019, or 2020 may be carried back five years to offset prior taxable income or carried forward indefinitely. The 80% taxable income limitation that normally applies to post-2017 NOLs is suspended for 2018, 2019, and 2020, allowing the full offset of taxable income in those years. NOLs arising before 2018 follow pre-TCJA rules with two-year carryback and twenty-year carryforward limitations.
Document the source year of NOL carryforwards, calculate the allowable deduction for each Schedule A based on that business’s income, and enter the NOL deduction amount on the appropriate line of Schedule A Part II before computing unrelated business taxable income.
Step 5: Complete All Schedule A Forms and Determine Totals
Finalize each Schedule A by ensuring all income and deduction amounts are accurate and properly documented. Verify that the specific deduction applied to each Schedule A is correct, considering controlled group limitations if applicable. Confirm that NOL deductions are properly allocated and do not exceed allowable amounts under CARES Act provisions for 2020.
Calculate unrelated business taxable income separately for each Schedule A, ensuring no individual business shows negative UBTI, as losses from one business cannot offset income from another. Aggregate total unrelated business taxable income from all Schedule A forms for entry on the main Form 990-T.
Step 6: Complete Part I of Main Form 990-T
Part I of the main form serves as the consolidation point for all unrelated business activities reported on individual Schedule A forms. Transfer total unrelated business taxable income from all attached Schedule A forms to the appropriate line in Part I. If the organization has only one unrelated trade or business, the Schedule A result flows directly to Part I. Organizations with multiple businesses sum the UBTI from each Schedule A, ensuring each business amount is zero or positive as required. Part I also captures charitable contribution limitations that apply at the aggregate level.
Charitable contributions are limited to 10% of unrelated business taxable income computed before the charitable contribution deduction. Calculate the allowable charitable contribution deduction and enter it on the appropriate Part I line, reducing total UBTI accordingly.
Step 7: Calculate Tax Liability in Part II
Part II determines tax liability based on organization type. Organizations taxed as corporations multiply their unrelated business taxable income from Part I by 21% to calculate regular tax liability. Trusts that are taxed at trust rates use the trust tax rate schedule or Schedule D from the Form 1041 instructions to figure out how much tax they owe and enter that amount on the trust tax line.
Organizations subject to proxy tax under section 6033(e) for lobbying and political expenditures calculate proxy tax separately with supporting computations attached and enter it on the designated line. Trusts potentially subject to alternative minimum tax must compute AMT using the applicable forms and instructions, entering any AMT liability on the corresponding line. Add all applicable tax amounts from the regular tax, proxy tax, alternative minimum tax, and any other taxes to determine the total tax before credits in Part II.
Step 8: Claim Credits in Part III
Part III addresses tax credits and payments. Organizations claiming foreign tax credits must attach Form 1118 for corporations or Form 1116 for trusts, entering the allowable credit amount on the foreign tax credit line. Other credits, including general business credit, require a Form 3800 attachment with the credit amount entered on the general business credit line.
The minimum tax credit from the previous year requires an attachment to Form 8801 for corporations or Form 8827 for trusts, with the credit amount entered accurately. Credits for health insurance premiums paid by small employers are reported on Form 8941.
Calculate total credits by summing all allowable credit amounts. Subtract total credits from total tax before credits to determine net tax after credits. Report any additional taxes from recapture provisions on Forms 4255, 8611, 8697, or 8866 with forms attached, adding these amounts to net tax after credits to determine total tax liability.
Step 9: Report Payments and Calculate Balance
Part III continues with payment reporting. Enter any 2019 overpayment credited to the 2020 estimated tax on the prior year's overpayment line. Report all 2020 estimated tax payments made throughout the year, including quarterly installments on the estimated tax payment line. Include any tax deposited with the Form 8868 automatic extension request on the tax deposit line.
Foreign organizations report tax paid or withheld at source on the foreign withholding line. Backup withholding reported on Form 1099 should be entered on the backup withholding line of the tax return. The credit for health insurance premiums paid by small employers is reported separately on Form 8941. Other credits and payments, including the Form 2439 undistributed capital gains credit and the Form 4136 federal fuel tax credit, should be entered on the “Other Payments” line with descriptions attached.
Organizations with a 2020 net section 965 tax liability must report amounts paid from Form 965-A or Form 965-B. Sum all payment and credit amounts to determine total payments made for 2020.
Step 10: Finalize Return with Part IV, Part V, and Signatures
Calculate any estimated tax penalty using Form 2220 if the organization did not make required quarterly estimated payments or underpaid estimated taxes. Organizations with a tax liability of $500 or more are generally required to make estimated payments to avoid penalties. Enter the penalty amount on the estimated tax penalty line with Form 2220 attached.
Compare total payments against total tax liability, including penalties, to determine whether the organization owes additional tax or has an overpayment. If total tax exceeds total payments, enter the balance due on the tax due line and remit payment using the Electronic Federal Tax Payment System by the filing deadline. If total payments exceed total tax, enter the overpayment amount and select whether to have it credited to the 2021 estimated tax or refunded.
Complete Part IV by answering all applicable questions about limitations affecting the return. Line 1 asks whether at-risk limitations under section 465 apply. Line 2 addresses excess business loss limitations under section 461(l). Line 3 inquires about basis limitations from passive activities under section 469. Line 4 asks whether the organization had aggregate unrelated business taxable income or loss of $10,000 or less, which affects certain filing simplifications.
Complete Part V by answering the required disclosure questions. Report whether the organization had any interest in or signature authority over financial accounts in foreign countries, potentially requiring a FinCEN Form 114 filing. Disclose any distributions received from foreign trusts or grantor or transferor status to foreign trusts during 2020. Enter the total amount of tax-exempt interest received or accrued during the year.
Sign the return in the signature section under penalties of perjury. The authorized officer must sign and date the return, providing their title. Indicate whether the IRS may discuss the return with the paid preparer, if applicable. Paid preparers must complete their section with signature, date, PTIN, self-employment checkbox, firm name, employer identification number, address, and phone number.
Assembly and Filing Requirements
Assemble the complete return package starting with the main Form 990-T, followed by all Schedule A forms in order, then all other required schedules and attachments, including Form 4562 for depreciation, Schedule D for capital gains and losses, Form 4797 for Section 1231 gains, cost of goods sold worksheets, compensation schedules, and credit forms.
Attach Form 1118 or Form 1116 for foreign tax credits, Form 3800 for general business credits, Form 8801 or Form 8827 for prior year minimum tax credits, Form 8941 for health insurance credits for small employers, Form 2220 for estimated tax penalties, and any other supporting documentation referenced on the return.
Most organizations file Form 990-T by the 15th day of the 5th month after the end of their tax year. For calendar-year organizations, the 2020 return is due on May 17, 2021, reflecting the IRS's extension of the normal May 15 deadline. Organizations may request an automatic six-month extension by using Form 8868, which extends the filing deadline but not the payment deadline. Trusts described in section 401(a) and IRAs must be filed by the 15th day of the 4th month after the end of the year.
Mail the completed returns to the address specified in the current year's instructions on the IRS Where to File page for Form 990-T. The IRS encourages electronic filing through approved software providers. Organizations must use the Electronic Federal Tax Payment System for all tax payments. Do not mail payments with paper returns.
This comprehensive checklist ensures accurate Form 990-T completion for 2020, reflecting the redesigned form structure, CARES Act NOL modifications, and all applicable tax provisions for exempt organizations with unrelated business income.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
