What IRS Form 990-T (2020) Is For

Tax-exempt organizations use IRS Form 990-T (2020) to report unrelated business taxable income and calculate any income tax owed to the IRS. While these organizations are exempt from federal income tax on activities related to their mission, they must pay taxes on income from unrelated business activities. This form ensures that all revenue generated outside exempt functions is appropriately documented and taxed.

It also helps organizations maintain compliance with tax-exempt status by accurately reporting unrelated business income, total estimated tax payments, and any federal excise taxes paid. Filing IRS Form 990-T (2020) supports transparency by disclosing how much business income was generated from unrelated sources, such as rental income, advertising, or investments, and whether tax payments were made. It applies to both domestic and foreign organization exempt entities, including trusts, universities, and specific governmental organizations.

When You’d Use IRS Form 990-T (2020)

You would use IRS Form 990-T (2020) when a tax-exempt organization must report unrelated business income or correct a previously filed return:

1. Unrelated business taxable income over $1,000: An exempt organization must file Form 990-T if it earns more than $1,000 in gross income from unrelated business activities during the same tax year.
   
   
2. Amended returns for prior corrections: The form must be used when an organization identifies inaccuracies in a previously filed return or needs to revise its tax computation and income details.
   
   
3. Late or missed filings: The organization must file this form when responding to IRS notices about missing or unfiled returns to report unrelated business income and pay any tax owed.
   
   
4. Proxy tax liability: Form 990-T is required when a tax-exempt organization incurs proxy tax on lobbying, political expenditures, or similar non-exempt activities.
   
   
5. Trust or pension plan filing requirements: Certain qualified pension or trust entities must file if they generate unrelated business income during the tax year.

Key Rules or Details for 2020

Several rule changes and filing updates applied specifically to IRS Form 990-T (2020):

1. Mandatory e-filing: For 2020, most tax-exempt organizations were required to file electronically; paper filing was permitted only under limited exceptions.
   
   
2. Redesigned Schedule A: To properly report unrelated business income, each unrelated trade or business required a separate Schedule A with its NAICS code.
   
   
3. Siloing of business activities: Organizations were required to report each unrelated trade or business separately rather than offset losses between them.
   
   
4. CARES Act carryback provisions: The CARES Act allowed a five-year net operating loss carryback for losses from 2018 through 2020 to offset prior-year income.
   
   
5. Estimated tax and penalty rules: Organizations were encouraged to make estimated tax payments on time to avoid estimated tax penalties and accrued interest.
   
   
6. Reporting tax credits and adjustments: Entities claiming qualified business income deductions or employee retention credits had to ensure accurate adjustments in their tax computation.

Step-by-Step (High Level)

Here is the high-level process for filing IRS Form 990-T (2020):

1. Collect prior year and account data: Obtain IRS account transcripts using Form 4506-T to confirm the organization’s filing history and prior year’s tax payments.
   
   
2. Complete the form accurately: Fill out the 2020 version of Form 990-T and attach a separate Schedule A for each unrelated business activity, ensuring all gross income is reported correctly.
   
   
3. Attach supporting documents: Include all required schedules, statements, and explanations for amended returns or elective payment elections.
   
   
4. Check totals and credits: Review federal excise taxes, estimated tax payments, and any backup withholding to verify that figures align with financial records.
   
   
5. File electronically through approved channels: Submit electronically unless a paper filing exception applies; electronic filing helps ensure faster processing.
   
   
6. Keep complete records: To maintain compliance, retain copies of the form, tax computation worksheets, and all supporting documentation for each tax year.

Common Mistakes and How to Avoid Them

Avoiding these common errors will help ensure that your IRS Form 990-T (2020) filing is accurate and compliant:

1. Failing to file electronically: Electronic filing was mandatory for most 2020 filings, so using an approved e-file provider prevents rejection and processing delays.
   
   
2. Omitting Schedule A attachments: Each unrelated trade or business must have its own Schedule A; failing to include them can result in incomplete or inaccurate reporting.
   
   
3. Combining multiple business activities: The siloing rule requires each unrelated business to be reported separately, so combining profitable and loss activities can distort taxable income.
   
   
4. Ignoring eligible credits or deductions: Organizations must correctly claim employee retention credits, employer health insurance premiums, and other allowable deductions to avoid overpaying taxes.
   
   
5. Forgetting explanations on amended returns: When submitting amended returns, organizations must attach detailed statements explaining each change to prevent IRS processing delays.
   
   
6. Underestimating estimated tax liability: Failure to review prior year minimum tax and total estimated tax payments can result in interest and estimated tax penalties.

What Happens After You File

Once IRS Form 990-T (2020) is filed, the IRS will review the return and issue confirmation of acceptance. The agency calculates any penalties, interest, or additional tax liability and bills the organization separately if required. Refunds and amended filings may take longer to process than standard submissions. 

If the organization cannot pay its full balance, it can request an installment agreement using Form 9465 to make structured payments. Tax-exempt organizations must also keep copies of filed returns and make them available for public inspection at least three years after submission.

FAQs

How does the alternative minimum tax affect organizations filing IRS Form 990-T (2020)?

Some exempt organizations may be subject to the alternative minimum tax if their unrelated business income produces certain preference items. In these cases, the organization must calculate total income tax paid and verify whether the alternative minimum tax applies to its adjusted gross income.

Where should the employer identification number be listed on IRS Form 990-T (2020)?

The employer identification number should appear at the top of the form and on every attached Schedule A. It ensures that the IRS can link the filing to the correct organization, whether the filer is a trust, university, or regulated investment company.

What is considered business income tax for a tax-exempt organization?

Business income tax applies to income from activities unrelated to the organization’s exempt purpose. Examples include revenue from advertising, certain real estate investment trust dividends, or sales of goods unrelated to charitable or educational functions.

How can an organization avoid an estimated tax penalty on Form 990-T (2020)?

An organization can avoid an estimated tax penalty by making timely estimated payments and accurately reporting prior income tax paid. It should also account for credits such as the employee retention credit or certain federal excise taxes when computing its total costs.

What is unrelated business income tax, and why is it important?

Unrelated business income tax applies to income from ongoing business activities unrelated to an organization’s exempt function. Paying this tax helps maintain tax exemption status by showing compliance with IRS rules while ensuring fairness between exempt organizations and for-profit entities.