What IRS Form 990-T (2024) Is For

Tax-exempt organizations use IRS Form 990-T (2024) to report unrelated business income and determine their liability for the unrelated business income tax (UBIT). Even though these organizations are tax-exempt for their primary activities, they must pay income tax on revenue from unrelated business operations. This form helps the Internal Revenue Service (IRS) track and assess taxes on earnings that do not directly relate to the organization’s exempt purpose under the Internal Revenue Code section governing tax-exempt entities.

Tax-exempt organizations, including regulated investment companies, real estate investment trusts, employee trusts, and governmental organizations, may need to file this form when they receive unrelated business taxable income. It also applies to entities that report unrelated business income from advertising, rental property, or debt-financed real estate. The return ensures proper calculation of qualified business income, taxable income, and income tax paid, along with reporting federal excise taxes paid or proxy tax liability.

When You’d Use IRS Form 990-T (2024)

Organizations must file IRS Form 990-T (2024) if they have $1,000 or more in gross unrelated business income for the year. You would also need to file or amend this form in these everyday situations:

1. Unfiled or Late Returns: An exempt organization must file if it receives an IRS notice about an unfiled return or discovers previously unreported unrelated business income for any tax year.
   
   
2. Amended or Corrected Filings: An organization should file an amended return when correcting errors, revising reported income, or adjusting net operating losses (NOLs) to reflect accurate tax amounts.
   
   
3. Refund Claims: Filing is required when the organization seeks to recover overpaid income tax or claim adjustments related to unused contributions carried or prior year minimum tax.
   
   
4. State-Level Requirements: An amended federal return may also require an organization to update its state returns if affiliated group or parent-subsidiary controlled group rules apply to its taxable income.

Key Rules or Details for 2024

Several key updates apply to IRS Form 990-T (2024), affecting how exempt organizations report unrelated business income and calculate their tax obligations:

1. Filing Extensions: All tax-exempt organizations must use Form 8868 to request an extension of time to file; no other extension forms are accepted for the 2024 tax year.
   
   
2. Schedule A Filings: Each unrelated business activity must have its own Schedule A filed separately to comply with the IRS siloing rules for unrelated trades or businesses.
   
   
3. NOL Carryforward Rules: Net operating losses (NOLs) incurred before 2018 can offset 100% of taxable income. NOLs arising after 2017 are limited to offsetting 80% of taxable income and must be tracked separately for each business activity.
   
   
4. Form 4626 Elimination: Form 4626 for the alternative minimum tax is no longer required for organizations that file Form 990-T for the 2024 tax year.
   
   
5. Tax Computation Requirements: Every organization must compute its total tax liability, including general business credit and proxy tax, based on the current tax rate schedule, while reporting any tax-exempt interest received or proxy tax liability on the form.

Step-by-Step (High Level)

The filing process for IRS Form 990-T (2024) involves a few critical steps that ensure accuracy and compliance with IRS requirements:

1. Gather IRS Records: Collect IRS account transcripts and internal documentation to confirm prior filings, tax deposits, penalty amounts, and any unpaid tax that may still be outstanding.
   
   
2. Complete the Form: Fill out the 2024 Form 990-T accurately by following the official IRS instructions and reporting all income generated from unrelated business activities.
   
   
3. Prepare Schedule A: Attach a separate Schedule A for each unrelated business activity as required by the IRS siloing rules and calculate each net operating loss (NOL) separately for each business.
   
   
4. Attach Required Schedules: Include all supporting schedules such as Schedule I, supplemental information for foreign country income or reinsurance entities, and worksheets for tax computation or qualified business income.
   
   
5. File Electronically or by Mail: If eligible, submit the completed form electronically through an authorized IRS e-file provider or by mail. Ensure all organization filing details, group exemption number, and paid preparer information are included.
   
   
6. Retain Records: Maintain copies of the filed return, supporting documentation, and records of the organization’s operations for at least seven years to meet federal audit and compliance standards.

Common Mistakes and How to Avoid Them

These are some of the most frequent filing errors organizations make with IRS Form 990-T (2024) and how to prevent them:

• Missing Separate Schedule A Filings: Organizations must always file a separate Schedule A for each unrelated business activity to comply with the IRS siloing rules and avoid incomplete reporting.
  
  
• Incorrect Deduction Application: The $1,000 specific deduction must not be applied to net operating losses or multiple Schedule A filings because it is intended only for the total unrelated business taxable income.
  
  
• Incorrect Expense Allocation: To prevent overstating deductions or misreporting taxable income, each organization must accurately divide expenses between exempt purpose operations and unrelated business income.
  
  
• Overlooking Estimated Tax Payments: Organizations with a tax liability of $500 or more must make total estimated tax payments on time to prevent penalties and interest from accruing.
  
  
• Confusing Filing Thresholds: The $1,000 threshold applies to gross income, not net income, so even small-profit activities that exceed this limit must be reported.
  
  
• Late Filing Without Reasonable Cause: Filing late without requesting an extension through Form 8868 can result in compounded daily interest and penalties under federal excise tax rules.

What Happens After You File

Once an organization files IRS Form 990-T (2024), the IRS typically processes e-filed returns within six to eight weeks and paper returns within eight to twelve weeks. The IRS then sends confirmation notices showing receipt, balance due, refund eligibility, or income tax paid. If the organization owes additional tax, payment plans and installment agreements can be established to prevent collection actions. Interest continues to accrue daily on unpaid tax until the balance is paid in full. Amended returns or appeals may be filed if the organization identifies reporting errors or disputes adjustments made by the IRS.

FAQs

How does business income tax apply to an exempt organization?

An exempt organization must still file and pay business income tax if it earns revenue from unrelated business activities. Even though it maintains tax-exempt status, the organization must report this income to ensure compliance with federal requirements.

What is proxy tax, and when does it apply?

Proxy tax applies when an exempt organization incurs certain federal excise taxes on income that is not directly related to its exempt purpose. These taxes ensure that organizations pay taxes appropriately on unrelated income sources such as advertising or lobbying.

How is taxable income determined for Form 990-T?

Taxable income is calculated by subtracting allowable deductions and losses from the reported unrelated business income. The IRS permits organizations to apply the income forecast method when determining deductions for long-term contracts or similar income streams.

When must an exempt organization file Form 990-T for individual retirement accounts?

An exempt organization or trustee managing individual retirement accounts must file Form 990-T if unrelated business income is generated. This ensures that retirement funds and related accounts pay taxes on income not associated with the exempt purpose.