What IRS Form 990-T (2023) Is For

Tax-exempt organizations use IRS Form 990-T (2023) to report unrelated business income that is not substantially related to their charitable or exempt purposes. The Internal Revenue Service requires nonprofit organizations, private foundations, and other exempt entities that earn $1,000 or more in gross unrelated business income during the tax year to file this form. This ensures the proper calculation and payment of unrelated business income tax (UBIT), which applies to income from regularly carried business activities outside the organization’s exempt function. 

Form 990-T also helps preserve a tax-exempt organization’s compliance with Internal Revenue Code section 511, which governs unrelated business taxable income. By filing the correct annual information return, tax-exempt entities disclose their unrelated business activities, deductions, and expenses transparently. 

When You’d Use IRS Form 990-T (2023)

Tax-exempt organizations must file or amend IRS Form 990-T (2023) under several conditions.

1. Late filing after the deadline: This applies when an exempt organization or charitable corporation misses the May 15, 2024, deadline for calendar-year filers or a later extended date for fiscal year entities.
   
   
2. Amended returns for errors: This is required when nonprofit organizations discover errors in reporting unrelated business income, receive corrected Schedule K-1s, or identify omissions in prior filings.
   
   
3. Refund claims for overpaid taxes: A Form 990-T should be filed to claim a refund of unrelated business income tax within three years of the original due date or the date the return was filed.
   
   
4. Response to IRS notices: Organizations must file or amend when the Internal Revenue Service issues notices about unfiled annual returns, unpaid taxes, or missing employer identification numbers.
   
   
5. Corrections affecting state filings: Nonprofit entities that amend their federal Form 990-T may need to amend related state returns when those jurisdictions base their tax obligations on federal income tax data.

Key Rules or Details for the 2023 Tax Year

IRS Form 990-T (2023) included several vital rules and filing details specific to tax-exempt organizations and exempt entities for the 2023 tax year. 

1. UBTI siloing rules: Each unrelated business must be treated as a separate trade or business; losses from one cannot offset income from another to ensure accurate reporting and prevent misuse of deductions.
   
   
2. Net operating loss (NOL) limitations: Under the current Internal Revenue Code section 172, NOL deductions are limited to 80% of taxable income, and carrybacks are prohibited for unrelated business income.
   
   
3. Electronic filing requirements: The Internal Revenue Service requires most tax-exempt organizations, including charitable organizations and private foundations, to file Form 990-T electronically using the IRS e-filing system.
   
   
4. Elective energy credit payments: Some small organizations and governmental entities that filed solely for energy credit claims had simplified procedures when submitting their annual return.
   
   
5. Estimated tax obligations: Any exempt organization with a liability of $500 or more in unrelated business income tax must make estimated tax payments throughout the fiscal year to avoid penalties.
   
   
6. Filing relief for certain governmental entities: The IRS granted special filing relief to certain governmental or regulated investment company filers making elective payment elections for energy credits.

Step-by-Step (High Level)

Tax-exempt organizations should follow these high-level steps to ensure a complete and accurate filing for IRS Form 990-T (2023).

1. Obtain IRS account transcripts: Organizations should request account transcripts for 2023 to verify prior filings, tax liabilities, and credits recorded with the Internal Revenue Service.
   
   
2. Use the correct version of Form 990-T: Filers must use the official 2023 form and instructions rather than a current-year version to ensure proper calculations and compliance with Internal Revenue Service requirements.
   
   
3. Apply siloing rules for each unrelated business: Each business must have its own Schedule A to report income and deductions separately, as required by the Internal Revenue Code section 512.
   
   
4. Attach necessary schedules and forms: Organizations should include all applicable attachments, such as Schedule D for capital gains, Schedule M for noncash charitable contributions, and any supporting documents.
   
   
5. File electronically through the IRS system: Electronic filing is mandatory for most exempt organizations; amended filings should be marked as “AMENDED” when corrections are made.
   
   
6. Retain documentation and proof of submission: Exempt organizations must maintain copies of all forms, receipts, and IRS acknowledgments for at least three years to support potential refund claims or audits.

Common Mistakes and How to Avoid Them

These mistakes can result in processing delays, penalties, or questions about the organization’s tax-exempt status. Avoid these issues by reviewing the following common errors and best practices.

• Combining multiple businesses on one Schedule A: Each unrelated business must be reported separately using a distinct Schedule A to comply with siloing rules and maintain accurate unrelated business income reporting.
  
  
• Incorrect application of NOL limitations: Organizations should ensure that the 80% limitation on net operating losses is correctly applied and that losses are not carried across unrelated trades or business activities.
  
  
• Using the wrong form version: To ensure compliance with Internal Revenue Service guidance, tax-exempt entities must use the 2023 version of Form 990-T instead of a prior or current-year form.
  
  
• Submitting paper returns when electronic filing is required: The IRS mandates e-filing for most nonprofit organizations; submitting paper returns may result in rejection or late-filing penalties.
  
  
• Overlooking estimated tax obligations: Organizations with over $500 in unrelated business income tax liability must make estimated payments during the tax year to avoid underpayment penalties.
  
  
• Failing to report proxy tax on lobbying expenditures: Exempt organizations must accurately report and pay any proxy tax related to lobbying activities to preserve their tax exemption and avoid examination.

What Happens After You File

Once an exempt organization files IRS Form 990-T (2023), the Internal Revenue Service generally processes the return within 8 to 12 weeks. Amended returns or refund claims may take longer, depending on the complexity and verification required. If discrepancies are found, the IRS issues notices requesting clarification, supporting documentation, or payment of additional taxes. 

Organizations unable to pay in full may request an installment agreement using Form 9465. Interest accrues daily on unpaid taxes and penalties until the balance is satisfied. Timely responses to IRS correspondence are essential to prevent additional assessments and maintain good standing under tax-exempt status. 

FAQs

How does IRS Form 990-T (2023) affect tax-exempt status?

Filing IRS Form 990-T (2023) helps preserve an organization’s tax-exempt status by ensuring compliance with Internal Revenue Code reporting requirements. Exempt organizations that fail to report unrelated business income correctly may risk losing their tax exemption.

Does this form involve paying income tax?

Even though exempt organizations are not subject to regular corporate income tax, they must pay unrelated business income tax on profits from activities not substantially related to their exempt purpose. 

Are all exempt organizations required to file Form 990-T?

Not all exempt organizations are required to file. Only those with $1,000 or more in gross unrelated business income must submit Form 990-T to the Internal Revenue Service. However, small organizations should still review their annual return requirements.

What is proxy tax, and how should it be handled?

Proxy tax applies to certain lobbying or political expenditures made by exempt organizations. The organization must calculate and report this tax on its annual Form 990-T filing.