IRS Form 990-T (Schedule A) – In the world of nonprofit and exempt organizations, managing finances goes beyond charitable contributions and program expenses. When these entities engage in activities that generate income unrelated to their core mission, they may face tax implications. Enter IRS Form 990-T and its crucial attachment, Schedule A, which helps report Unrelated Business Taxable Income (UBTI) from an unrelated trade or business. This article breaks down what Schedule A entails, who needs it, how to approach it, and key updates for tax year 2025. Whether you’re a nonprofit leader, accountant, or tax professional, understanding UBTI can help ensure compliance and avoid penalties.
What Is Unrelated Business Taxable Income (UBTI)?
Unrelated Business Taxable Income, or UBTI, refers to earnings from a trade or business that an exempt organization regularly carries on, but which isn’t substantially related to the organization’s exempt purpose—beyond simply needing the funds. For example, a museum (exempt for educational purposes) running a gift shop might generate UBTI if sales aren’t tied directly to its mission. The IRS taxes this income to level the playing field with for-profit businesses.
Exempt organizations under sections like 501(c)(3), 501(c)(7), or others must report UBTI if it reaches $1,000 or more in gross income from unrelated activities. This is where Form 990-T comes in: it’s the primary return for reporting UBI, calculating the unrelated business income tax (UBIT), and handling related matters like proxy taxes or refunds. Schedule A is specifically designed to detail UBTI from each separate unrelated trade or business, ensuring accurate separation and computation.
Who Needs to File IRS Form 990-T Schedule A?
Not every exempt organization files Schedule A. Here’s a quick overview:
- Threshold for Filing: If your organization has $1,000 or more in gross income from unrelated businesses, you must file Form 990-T and attach a separate Schedule A for each distinct unrelated trade or business.
- Types of Organizations: This applies to most exempt entities, including charities, social clubs, trade associations, and even IRAs or retirement accounts with UBTI (e.g., from certain investments).
- Exceptions: No Schedule A is required if there’s no UBTI. For organizations only making elective payment elections or paying proxy taxes, you may file Form 990-T without Schedule A.
- Due Date: For calendar-year filers, Form 990-T (including Schedule A) is due by May 15th of the following year. Extensions are available via Form 8868.
Remember, filing Form 990-T is separate from your annual information return (like Form 990 or 990-EZ). If your organization expects $500 or more in tax liability, estimated taxes may also be required.
Key Components of Schedule A: Breaking Down the Form
Schedule A (Form 990-T) focuses on computing UBTI for a single unrelated trade or business. Organizations must use a separate schedule for each activity, as per IRC section 512(a)(6), which prohibits netting losses across different businesses. Here’s a high-level look at its structure:
Part I: Unrelated Trade or Business Income
This section captures gross income from the activity. Key lines include:
- Gross receipts or sales (Line 1a).
- Capital gains (Line 4a) and losses (for trusts only).
- Income from partnerships or S corporations (Line 5).
- Rent income (Line 6), unrelated debt-financed income (Line 7), and more specialized items like advertising (Line 11) or exploited exempt activities (Line 10).
Total this up on Line 13 to get gross UBTI before deductions.
Part II: Deductions Not Taken Elsewhere
Deductions must be directly connected to the unrelated business (e.g., salaries, rent, depreciation). Allocate shared expenses reasonably between exempt and unrelated uses. Notable lines:
- Compensation of officers (refer to Part X).
- Interest, taxes, and depreciation (Lines 5–7).
- Net operating loss (NOL) deductions (Line 17), limited to pre-2018 NOLs and up to 80% of taxable income for post-2017.
Subtract these from Part I totals to arrive at net UBTI on Line 18 (report positive amounts only on Form 990-T).
Supporting Parts (III–XI)
These handle specifics like cost of goods sold (Part III), rent income (Part IV), debt-financed property (Part V), and advertising (Part IX). For instance, Part V calculates income from property financed by debt, using an acquisition indebtedness percentage.
At the top, enter a 6-digit business activity code (e.g., based on NAICS) to identify the trade. If gross income is $10,000 or less, simplified reporting applies.
How to Complete and File Schedule A: Step-by-Step Tips?
- Identify Separate Trades: Determine if activities qualify as separate (e.g., advertising vs. retail sales).
- Gather Data: Collect income statements, expense allocations, and supporting forms (e.g., Form 4797 for gains).
- Compute UBTI: Fill Parts I–II first, then supporting parts as needed. Sum positive UBTI across all Schedules A for Form 990-T.
- Apply Deductions: Include a $1,000 specific deduction per organization (not per schedule), and consider section 199A for qualified business income (for trusts).
- File Electronically: The IRS encourages e-filing for accuracy and speed.
For detailed line-by-line guidance, consult the official instructions.
Recent Updates for Tax Year 2025
The 2025 instructions emphasize separate Schedule A filings for each trade, with no aggregation of income/deductions across businesses. Updates include clarifications on elective payment elections for applicable entities (e.g., entering zeros in certain parts if no UBTI) and handling of consolidated returns for title-holding companies. Organizations should also note rules for public inspection of Schedule A for section 501(c)(3) entities. Always check for inflation adjustments or legislative changes affecting UBIT rates (corporate rate at 21%, trust rates per schedule).
Where to Download IRS Form 990-T Schedule A?
To get started, download the latest version of Schedule A (Form 990-T) directly from the IRS website: https://www.irs.gov/pub/irs-pdf/f990tsa.pdf. Pair it with the full instructions at https://www.irs.gov/pub/irs-pdf/i990t.pdf for comprehensive guidance.
Final Thoughts on Managing UBTI for Nonprofits
Navigating IRS Form 990-T Schedule A is essential for exempt organizations to stay compliant while maximizing their mission-driven work. By properly reporting UBTI, you can minimize tax liabilities through allowable deductions and avoid IRS scrutiny. If your organization has complex activities, consider consulting a tax advisor. Staying informed with IRS resources ensures you’re prepared for filing season—empowering your nonprofit to thrive without unexpected tax hurdles.