IRS Form 990 (Schedule R) – Related Organizations and Unrelated Partnerships

IRS Form 990 (Schedule R) – In the world of tax-exempt organizations, compliance with IRS reporting requirements is crucial for maintaining exempt status and transparency. One key component of this is IRS Form 990 Schedule R, which focuses on disclosing relationships with related organizations and certain unrelated partnerships. This schedule helps the IRS monitor potential conflicts of interest, financial transactions, and activities that could impact an organization’s tax-exempt operations. Whether you’re a nonprofit executive, accountant, or compliance officer, understanding Schedule R is essential for accurate filing and avoiding penalties.

This article breaks down everything you need to know about IRS Form 990 Schedule R, including its purpose, filing requirements, key definitions, and step-by-step completion guidance. We’ll draw from official IRS sources to ensure accuracy and relevance for the 2025 tax year.

What is IRS Form 990 Schedule R?

IRS Form 990 Schedule R, titled “Related Organizations and Unrelated Partnerships,” is an attachment to Form 990, the annual information return filed by tax-exempt organizations under section 501(c) of the Internal Revenue Code. It requires organizations to report details about entities they control, are controlled by, or have significant relationships with, as well as certain partnerships that aren’t directly related but through which the organization conducts substantial activities.

The primary goal of Schedule R is to promote transparency by identifying potential areas where funds or resources might be diverted from the organization’s exempt purpose. For instance, it flags transactions like loans, grants, or shared services between the filing organization and its affiliates. This helps the IRS assess compliance with rules against private inurement and excess benefit transactions.

Introduced as part of the redesigned Form 990 in 2008, Schedule R centralizes reporting that was previously scattered across the form. It’s particularly relevant for larger nonprofits, such as hospitals, universities, and foundations, that often have complex affiliate structures.

Who Needs to File IRS Form 990 Schedule R?

Not every tax-exempt organization filing Form 990 must attach Schedule R. Filing is triggered by “Yes” responses to specific questions in Form 990, Part IV (Checklist of Required Schedules):

  • Line 33: If the organization has disregarded entities (like single-member LLCs treated as part of the organization for tax purposes).
  • Line 34: If the organization has related tax-exempt organizations, partnerships, corporations, or trusts.
  • Line 35b: If there were certain transactions with controlled entities under section 512(b)(13).
  • Line 36: For section 501(c)(3) organizations that made transfers to non-charitable exempt related organizations.
  • Line 37: If the organization conducted more than 5% of its activities through an unrelated partnership (measured by total assets or gross revenue).

Organizations in group exemptions may have simplified reporting for affiliates within the same group but must still disclose transactions. Special rules apply to voluntary employees’ beneficiary associations (VEBAs) under section 501(c)(9), which must report sponsoring organizations and contributing employers.

If your organization answers “No” to all these lines, you can skip Schedule R. However, even if filing is required, you only complete the relevant parts based on the types of relationships and transactions involved.

Understanding the terminology is vital for proper reporting on IRS Form 990 Schedule R.

A related organization is any entity (tax-exempt, taxable, partnership, corporation, trust, or governmental unit) that stands in one of these relationships to the filing organization:

  • Parent: Controls the filing organization.
  • Subsidiary: Controlled by the filing organization.
  • Brother/Sister: Controlled by the same person(s) or entity(ies).
  • Supporting/Supported: As defined under sections 509(a)(3) and 509(f)(3).
  • Sponsoring Organization or Contributing Employer of a VEBA: For section 501(c)(9) entities.

Control is defined differently by entity type:

  • For nonprofits: Power to appoint or remove a majority of directors/trustees.
  • For corporations: More than 50% ownership of stock.
  • For partnerships: More than 50% of profits/capital interests or status as a managing partner.
  • Indirect control (e.g., through chains of entities) also counts.

Disregarded entities, like single-member LLCs, are treated as part of the filing organization but must be listed separately in Part I.

Unrelated Partnerships

These are partnerships (not S corporations) where:

  • The filing organization is a partner or member.
  • More than 5% of the organization’s activities (by assets or revenue) are conducted through the partnership.
  • The partnership is not a related organization.

Passive investment partnerships (where 95%+ of revenue is from interest, dividends, etc.) are generally excluded if the purpose is investment rather than charitable activities.

Structure and Parts of IRS Form 990 Schedule R

Schedule R consists of seven parts, each addressing different aspects of relationships and transactions. Here’s an overview:

Part Title Key Focus
I Identification of Disregarded Entities Lists entities like LLCs ignored for tax purposes but requiring disclosure. Includes name, EIN, activity, income, assets, and controlling entity.
II Identification of Related Tax-Exempt Organizations Details tax-exempt affiliates, including exempt code section and public charity status.
III Identification of Related Organizations Taxable as a Partnership Reports related partnerships, with details on income type, share of assets, and ownership percentage.
IV Identification of Related Organizations Taxable as a Corporation or Trust Covers related corporations (C or S) or trusts, excluding 401(a) trusts.
V Transactions With Related Organizations Yes/No checklist for 19 transaction types (e.g., grants, loans, asset sales), plus detailed reporting for significant amounts.
VI Unrelated Organizations Taxable as a Partnership Similar to Part III but for unrelated entities meeting the 5% activity threshold.
VII Supplemental Information Space for explanations or additional details.

This tabular format makes it easier to navigate the form’s requirements.

How to Complete IRS Form 990 Schedule R: Step-by-Step Guide?

Filling out Schedule R requires gathering data from K-1 forms, financial statements, and governance documents. Here’s a streamlined process:

  1. Review Form 990 Part IV: Determine which parts of Schedule R to complete based on your answers.
  2. Identify Entities: List all potential related organizations using the control definitions. For unrelated partnerships, calculate the 5% threshold using end-of-year assets or revenue.
  3. Gather Data: Use Schedule K-1 (Form 1065) for partnership details like share of income, assets, and UBI (unrelated business income) from box 20.
  4. Complete Parts I–IV: Enter entity details line by line. For aggregated trusts, group by type (e.g., “Charitable remainder trusts (2)”).
  5. Part V – Transactions: Check “Yes” for any of the 19 transaction types (a–s) with related organizations. Report details if over $50,000 or involving controlled entities. Use fair market value (FMV) for amounts and describe valuation methods.
  6. Part VI: Only for qualifying unrelated partnerships; exclude if all partners are 501(c)(3) orgs unless disproportionate allocations exist.
  7. Part VII: Add clarifications, such as for group exemptions or indirect control.
  8. File Electronically: Attach to Form 990 and submit via IRS-approved e-filing providers.

For VEBAs, limit employer reporting to names and EINs in Parts II–IV.

Common Transactions to Report on Schedule R

Part V highlights transactions that could raise red flags if not disclosed properly. Examples include:

  • Gifts or grants to/from related organizations.
  • Loans or guarantees.
  • Asset sales, leases, or exchanges.
  • Shared employees or facilities.
  • Reimbursements or other cash transfers.

Report aggregates for similar transactions with the same entity, but itemize if needed for clarity.

Tips for Compliance and Avoiding Common Mistakes

  • Double-Check Control: Misidentifying relationships can lead to incomplete reporting. Use IRS glossary definitions.
  • Threshold Calculations: For unrelated partnerships, base the 5% on the greater of assets or revenue; include only active conduct, not passive investments.
  • Public Inspection: Schedule R is open to public view, so ensure sensitive info is handled carefully.
  • Penalties: Incomplete or inaccurate filing can result in fines up to $10,000 per return.
  • Seek Professional Help: Consult a tax advisor for complex structures.
  • Stay Updated: Check IRS.gov for annual changes, as instructions are revised yearly (e.g., Rev. December 2024).

Common pitfalls include forgetting indirect control, underreporting transactions, or omitting UBI amounts.

Resources and Where to Download IRS Form 990 Schedule R

Download the latest form and instructions directly from the IRS:

Additional guidance is available on IRS.gov under Charities & Non-Profits, including FAQs on annual reporting.

By properly completing IRS Form 990 Schedule R, tax-exempt organizations demonstrate accountability and strengthen their compliance posture. If your nonprofit has affiliates or partnerships, reviewing this schedule annually can prevent issues and ensure smooth IRS interactions. For personalized advice, consult a qualified tax professional.