What IRS Form 990-T (2021) Is For

IRS Form 990-T (2021) is used by tax-exempt organizations to report income earned from business activities that are not substantially related to their exempt purpose. This type of income, unrelated business taxable income (UBTI), ensures that organizations pay taxes on profits generated from activities outside their charitable or nonprofit mission. Examples include rental income from specific properties, advertising revenue, or earnings from unrelated product sales.

The form also applies to section 501(c) organizations, trusts, and specific governmental organizations that engage in unrelated business operations. Filing Form 990-T (2021) helps maintain tax-exempt status while ensuring compliance with income tax obligations. It is required when gross income from unrelated business activities exceeds $1,000 during tax years beginning in 2021. Accurate filing allows organizations to report taxable income, claim allowable deductions, and demonstrate transparency to the Internal Revenue Service (IRS).

When You’d Use IRS Form 990-T (2021)

Organizations file IRS Form 990-T (2021) in specific cases when they must report, amend, or reconcile unrelated business income with the IRS.

1. Late filing situations: This form is used when an organization misses the original filing deadline and must submit the return to address IRS notices or unpaid taxes.
   
   
2. Amended returns: When the organization discovers errors in previously reported income, deductions, or taxable income calculations, an amended Form 990-T (2021) is required.
   
   
3. Refund claims: The form requests refunds for overpaid taxes from a prior tax year, generally within three years of the original due date or filing date.
   
   
4. Multiple unfiled years: To reduce accumulated interest and penalties, separate forms must be filed for each unfiled year, beginning with the oldest year.
   
   
5. Proxy tax situations: Certain trusts and tax-exempt organizations use the form when they owe proxy tax on lobbying or political expenditures.

Key Rules or Details for the 2021 Tax Year

Several specific rules applied to IRS Form 990-T (2021) that exempt organizations needed to follow to stay compliant.

1. Electronic filing requirement: All Form 990-T returns for 2021 must be filed electronically through an IRS-authorized e-file provider to ensure timely processing.
   
   
2. Temporary 100% business meal deduction: Qualified meal expenses incurred by unrelated business activities were eligible for a full deduction under the temporary COVID-related tax relief provision.
   
   
3. COVID-related credits: Organizations could claim the Employee Retention Credit and Qualified Sick and Family Leave Credits under the American Rescue Plan Act, limited to wages paid before October 1, 2021.
   
   
4. Siloing rule: Each unrelated trade or business had to be reported separately, and losses from one company could not offset income from another to ensure accurate taxable income reporting.
   
   
5. Estimated tax payments: Organizations with substantial unrelated business taxable income must make quarterly estimated tax payments to avoid underpayment penalties.

Step-by-Step (High Level)

The following steps provide a simplified overview of correctly completing and filing IRS Form 990-T (2021).

1. Gather tax transcripts: Obtain IRS account records using Form 4506-T or the Get Transcript online tool to confirm filing history and reported income details.
   
   
2. Prepare Form 990-T (2021): Complete the correct version of the form for the 2021 tax year, including a separate Schedule A for each unrelated trade or business activity.
   
   
3. Attach required schedules: Include all necessary attachments such as Schedule D, credit forms, and any supplemental information related to deductions or credits claimed.
   
   
4. File electronically: Submit the completed return through an IRS-authorized e-file provider to comply with the electronic deposit requirement and ensure prompt processing.
   
   
5. Keep complete records: Retain copies of all filed forms, schedules, payment confirmations, and financial account details to prove compliance with IRS regulations.

Common Mistakes and How to Avoid Them

Filing IRS Form 990-T (2021) can be complex, and several recurring errors may lead to penalties or rejected returns. The following points explain common mistakes and how to prevent them.

• Combining multiple unrelated businesses on one Schedule A: Each unrelated trade or business must be reported separately to comply with the IRS siloing rule and prevent income misreporting.
  
  
• Incorrect application of net operating losses: Losses from one activity cannot offset income from another; organizations should track and apply net operating loss deductions separately for each business.
  
  
• Failing to meet the $1,000 gross income threshold: Exempt organizations must file Form 990-T when their unrelated business income exceeds $1,000 during the tax year.
  
  
• Using the wrong tax year’s form: Always use the 2021 version when filing for tax years beginning in 2021 to ensure calculations and schedules match IRS requirements.
  
  
• Overlooking COVID-related credits: Before finalizing the return, eligible organizations should verify whether they qualify for the Employee Retention Credit or Qualified Sick Leave Credit.
  
  
• Submitting a paper return instead of e-filing: Since electronic filing is mandatory, using paper forms may result in processing delays or return rejection.

What Happens After You File

After electronically submitting IRS Form 990-T (2021), the Internal Revenue Service (IRS) typically processes returns within twelve to sixteen weeks. The organization will receive an acknowledgment of receipt and, if applicable, a notice of any balance due or refund issued. If full payment cannot be made immediately, an installment agreement may be requested using Form 9465. 

Interest and penalties will continue to accrue until the amount is fully paid. If the IRS makes adjustments that the organization disagrees with, an appeal can be filed through the Independent Office of Appeals for further review.

FAQs

What is the alternative minimum tax, and does it apply to exempt organizations?

The alternative minimum tax generally does not apply to most exempt organizations. However, certain entities classified as regulated investment companies or real estate investment trusts may still be subject to it depending on their taxable activities.

Where do I find my employer identification number for Form 990-T?

Your employer identification number (EIN) is a unique nine-digit number issued by the IRS. It must match the EIN used on prior filings to ensure accurate payment processing and application.

How is an estimated tax penalty calculated on Form 990-T?

An estimated tax penalty occurs when an organization fails to make sufficient quarterly payments. The IRS calculates this penalty based on total estimated tax payments made compared to the amount owed for the tax year.

What is a prior year minimum tax, and how does it affect the current filing?

A prior year minimum tax may apply if your organization previously paid minimum tax on alternative income sources. This amount can sometimes be credited or adjusted on the current tax rate schedule.

Can I claim a qualified business income deduction on Form 990-T?

The qualified business income (QBI) deduction typically does not apply to most exempt organizations. However, it may be relevant for activities connected to a regulated investment company or real estate investment trust that generates taxable business income.