IRS Instruction 990 (Schedule R)

IRS Instruction 990 (Schedule R) – As a tax-exempt organization filing Form 990, navigating the complexities of Schedule R can feel daunting. This schedule is essential for disclosing relationships with related organizations and unrelated partnerships, ensuring transparency and compliance with IRS regulations. Whether you’re a nonprofit, charity, or section 501(c)(3) entity, understanding IRS Schedule R (Form 990) instructions helps avoid penalties and maintain your exempt status.

In this comprehensive guide, we’ll break down the purpose of Schedule R, who must file it, key definitions, and step-by-step instructions for each part. Drawing from the official IRS resources, this article equips you with actionable insights to streamline your filing process. Let’s dive in.

What Is Schedule R (Form 990) and Why Does It Matter?

Schedule R (Form 990) requires organizations to report information on related organizations, certain transactions with them, and unrelated partnerships through which the organization conducts significant activities. This schedule promotes accountability by revealing potential conflicts of interest, control structures, and income sources that could impact unrelated business income tax (UBIT) obligations.

For tax-exempt organizations, accurate reporting on Schedule R is crucial. It helps the IRS assess whether your entity maintains arm’s-length dealings with affiliates and complies with sections like 512(b)(13) for controlled entities. Failure to file properly can trigger audits or loss of exemption. The instructions apply to tax year 2024 and later, making them a reliable, continuous-use resource for ongoing compliance.

Key Benefits of Mastering Schedule R:

  • Transparency: Builds trust with donors and stakeholders.
  • Compliance: Avoids IRS penalties for incomplete disclosures.
  • Strategic Insight: Identifies opportunities or risks in affiliate relationships.

Who Must File Schedule R (Form 990)?

Not every Form 990 filer needs Schedule R, but if you answer “Yes” to specific questions in Form 990, Part IV, attachment is mandatory. Here’s a quick overview:

Form 990, Part IV Line Trigger Required Parts
Line 33 Disregarded entities owned by the organization Part I
Line 34 Related organizations (tax-exempt or taxable) Parts II, III, IV, V (as applicable)
Line 35b Transactions with controlled entities Part V, line 2
Line 36 (for 501(c)(3) orgs) Transfers to exempt noncharitable related organizations Part V, line 2
Line 37 Activities conducted through unrelated partnerships (>5% of assets/revenue) Part VI

Even voluntary filers must complete Schedule R if applicable. Attach it directly to your Form 990 submission.

Before tackling the parts, grasp these core concepts. Bold terms align with IRS glossary definitions for precision.

A related organization includes any entity (nonprofit, corporation, partnership, LLC, trust, or government unit) linked by control or support during the tax year. Relationships include:

  • Parent: Controls the filing organization.
  • Subsidiary: Controlled by the filing organization.
  • Brother/Sister: Controlled by the same persons or entities.
  • Supporting/Supported: Under section 509(a)(3).
  • Sponsoring Organization of a VEBA: For voluntary employees’ beneficiary associations under section 501(c)(9).
  • Contributing Employer of a VEBA: Provides contributions to a VEBA.

Disregarded entities (e.g., single-member LLCs) are related for reporting but excluded from certain transactions. Bank trustees don’t automatically create brother/sister ties.

Control

Control varies by entity type:

  • Nonprofits: Majority voting power on board or membership.
  • Stock Corporations: >50% ownership of voting stock or value.
  • Partnerships/LLCs: >50% profits/capital interest or managing role in small entities.
  • Trusts: >50% beneficial interest.

Indirect control (e.g., via chains) counts, using attribution rules like section 318. For group exemptions, central organizations don’t list subordinates as related—note omissions in Part VII.

Unrelated Partnerships

These are partnerships where your organization is a partner, but not “related.” Report if >5% of your activities (greater of total assets or revenue) occur through it. Exclude passive investment vehicles where 95%+ revenue is passive (e.g., interest, dividends) and the purpose is income production, not charitable work.

Step-by-Step Guide: Completing Schedule R Parts

Use Schedule K-1 forms (1065, 1120-S, 1041) or reasonable estimates for data. Aggregate similar trusts (e.g., charitable remainder trusts) for efficiency.

Part I: Identification of Disregarded Entities

List each disregarded entity (e.g., wholly owned LLCs treated as divisions).

Columns to Complete:

  • (a): Name, address, EIN (use parent’s EIN for most taxes).
  • (b): Primary activity.
  • (c): Legal domicile (state or country).
  • (d): Total income (from Form 990, Part VIII, line 12).
  • (e): End-of-year assets (from Form 990, Part X, line 16).
  • (f): Direct controlling entity (usually your organization).

Tip: These entities’ activities flow through to your Form 990—treat them as part of yourself.

Report tax-exempt affiliates, including governments (treated as exempt).

Key Columns:

  • (a–c): Name, address, EIN; primary activity; domicile.
  • (d): Exempt code (e.g., 501(c)(3)); blank for undesignated governments.
  • (e): Public charity status (from Schedule A; “PF” for private foundations).
  • (f): Direct controlling entity.
  • (g): Section 512(b)(13) controlled? (Impacts UBIT.)

For foreign entities without IRS letters, use good-faith classification.

For related partnerships where you’re a partner.

Notable Columns:

  • (e): Predominant income type (related, unrelated, or excluded).
  • (f–g): Share of income and assets (from K-1).
  • (h): Disproportionate allocations? (Yes/No).
  • (i): UBI amount (K-1, box 20, code V).
  • (k): Ownership % (profits or capital).

If not a partner, enter “N/A” for financials.

Covers C corps, S corps, and trusts (exclude 401(a) plans).

Highlights:

  • (e): Type (C, S, T).
  • (f–g): Income and asset shares.
  • (h): Ownership %.
  • (i): Section 512(b)(13) controlled?

Aggregate split-interest trusts; use K-1 for S corps (note: 501(c)(3) S corp income is UBI).

Disclose dealings like loans, grants, or asset transfers (exclude disregarded entities).

  • Line 1: Check “Yes” if any transactions (a–s) occurred.
  • Line 2: Detail with controlled entities or >$50,000 transfers (for 501(c)(3)s to noncharitable exempts).

Table Columns:

  • (a): Related org name.
  • (b): Type (e.g., “a” for sales).
  • (c): Amount (FMV; higher of provided/received).
  • (d): Determination method (e.g., appraisal).

“Transfer” includes mergers.

Part VI: Unrelated Organizations Taxable as a Partnership

For non-related partnerships exceeding the 5% threshold.

Columns mirror Part III, plus:

  • (e): Other 501(c)(3) partners? (Yes/No).

5% Test Example: If your revenue is $1M and assets $2M, report if partnership share >$100K (greater of 5% revenue/assets).

Part VII: Supplemental Information

Use for explanations, like group exemption omissions or complex controls.

Common Mistakes and Tips for Filing Schedule R (Form 990)

  • Overlook Indirect Control: Always trace chains and apply attribution rules.
  • Inaccurate Percentages: Double-check K-1 data; estimates are okay but document them.
  • Foreign Entities: Rely on good-faith status without IRS letters.
  • Aggregation: Group similar trusts to simplify.
  • Passive Exclusions: Verify 95% passive revenue before skipping Part VI.

Consult Appendix F of Form 990 instructions for disregarded entities and Regulations §301.7701 for classifications. For software filers, ensure e-file compatibility.

Pro Tip: Review prior-year filings for consistency. If unsure, seek a tax professional specializing in nonprofits.

Conclusion: Stay Compliant with Schedule R

Mastering IRS Schedule R (Form 990) instructions ensures your organization reports related organizations and unrelated partnerships accurately, upholding transparency and avoiding IRS scrutiny. By following these guidelines, you’ll complete the schedule efficiently and focus on your mission.

For the full details, download the official PDF from the IRS website: Instructions for Schedule R (Form 990). Always check IRS.gov for updates, as requirements evolve.

If you’re preparing your 2025 Form 990 (due in 2026), start early—transparency today safeguards your exempt future tomorrow. Questions? Consult a CPA or the IRS Exempt Organizations hotline.

This article is for informational purposes only and not tax advice. Verify with current IRS guidance.