How to Fill Out IRS Form 990-T (w/Examples) + FAQs

To fill out IRS Form 990-T, you’ll need to report your tax-exempt organization’s unrelated business income and expenses, calculate the taxable income (if any), and complete the form’s sections and schedules to determine any Unrelated Business Income Tax (UBIT) due.

According to IRS statistics, more than 80,000 nonprofits filed Form 990-T in one recent year, reporting over $15 billion in business income and paying about $871 million in taxes. 📊 These numbers show that even tax-exempt organizations often generate taxable income that must be reported to the IRS.

• 📌 What Form 990-T Is & Why It Matters: Learn what Form 990-T is used for, which nonprofits and tax-exempt entities must file it, and why the IRS taxes Unrelated Business Taxable Income (UBTI).
• 💡 Step-by-Step Filing Guide: Get an easy breakdown of how to complete each part of Form 990-T, from reporting gross unrelated income to claiming deductions, computing tax, and attaching Schedule A for multiple businesses.
• 📝 Real Examples & Scenarios: See example scenarios (with tables) of common situations – like a charity with a gift shop, a church with a café, or a social club with investment income – and how they report income on Form 990-T.
• ⚖️ Federal vs. State Rules: Understand the federal UBIT rules first, then discover important state nuances – especially in California and New York – so your organization stays compliant at all levels.
• 🚫 Avoid Costly Mistakes: Find out the most frequent Form 990-T mistakes (and how to avoid them), and get clear Yes-or-No answers to FAQs about UBIT, filing deadlines, exceptions, and more.

What Is IRS Form 990-T and Who Needs to File It?

Form 990-T is the IRS Exempt Organization Business Income Tax Return. It’s the form that tax-exempt organizations (like nonprofits, charities, churches, colleges, social clubs, and even IRA trusts) must file to report Unrelated Business Taxable Income (UBTI) and pay tax on that income. In plain terms, this is how the IRS makes sure nonprofits pay taxes on income from any business activities not related to their charitable or exempt purpose.

Unrelated Business Taxable Income (UBTI) is the net income from a trade or business activity that is regularly carried on and not substantially related to the organization’s exempt mission. For example, if a 501(c)(3) charity runs a regular commercial business (like a gift shop or café) that isn’t directly part of its charitable programs, the profits from that business are UBTI. The IRS doesn’t want nonprofits gaining an unfair advantage by competing with for-profit businesses, so it taxes this income through UBIT. The tax on UBTI is called Unrelated Business Income Tax (UBIT), and it’s generally taxed at corporate rates (a flat 21% federal rate for most nonprofit corporations) or trust rates (for UBTI earned by trusts like IRAs).

Who must file Form 990-T? Any exempt organization with gross UBTI of $1,000 or more in a tax year must file. This $1,000 threshold is low, meaning even a small amount of unrelated business income triggers a filing requirement. Key examples include:

• A charitable nonprofit (501(c)(3)) with a side business (e.g. selling products or advertising) that brings in over $1,000.
• A church (which normally doesn’t file the Form 990 annual return) that runs a taxable business activity – yes, churches must file 990-T if they have sufficient UBTI.
• Other 501(c) entities like social clubs (501(c)(7)), trade associations (501(c)(6)), or labor unions (501(c)(5)) if they have unrelated business income (for instance, non-member income or investment income for a social club).
• Even certain retirement accounts and trusts: for example, a self-directed IRA or a 401(k) trust that invests in a business partnership may generate UBTI. If an IRA’s investments produce over $1,000 of UBTI, the IRA’s custodian has to file Form 990-T on behalf of the IRA.

In short, if an exempt organization of any kind regularly makes money from activities outside its tax-exempt purpose, and that gross income is at least $1,000, Form 990-T enters the picture.

Why does it matter? Filing Form 990-T (and paying any UBIT due) is crucial for compliance. Failure to file when required can lead to penalties and interest. Properly reporting UBTI allows the organization to remain in good standing while still pursuing some revenue-generating ventures to support its mission.

When Is Form 990-T Due and How to File?

Form 990-T is an annual return, and its due date depends on the organization’s tax year and structure:

• For tax-exempt corporations (which includes most nonprofits structured as corporations), Form 990-T is due by the 15th day of the 5th month after the end of the tax year. For a calendar-year organization, this means May 15 of the following year (the same deadline as Form 990). An automatic 6-month extension is available by filing Form 8868, pushing the deadline to November 15 for calendar-year filers.
• For trusts (such as IRAs or certain charitable trusts) filing Form 990-T, the deadline is the 15th day of the 4th month after year-end. For a calendar-year trust, that’s April 15. Trusts can also use Form 8868 for a 6-month extension (to October 15 for calendar year).

How to file: These days, Form 990-T is generally required to be filed electronically (e-file) if the organization files 250 or more returns in a year (counting W-2s, 1099s, etc.), and e-filing is encouraged for accuracy and speed for everyone. The IRS provides a modernized e-filing option for Form 990-T through authorized e-file providers. Alternatively, paper filing is still allowed in some cases, but be sure to attach all schedules and statements if filing by mail. Always use the latest version of the form for the correct tax year (the IRS updates Form 990-T periodically).

Payment of tax: If your Form 990-T shows a tax due (after calculating UBIT), the tax must be paid by the regular due date (not the extended date). Tax-exempt organizations can pay UBIT electronically (e.g. via the Electronic Federal Tax Payment System, EFTPS). Also, if the organization expects to owe $500 or more in UBIT for the year, it is required to make quarterly estimated tax payments (use Form 990-W as a worksheet to calculate those installments). Paying estimates helps avoid underpayment penalties.

Tip: Even if your organization ended up with no taxable income after deductions (or no tax due because of the $1,000 specific deduction – see below), you still need to file Form 990-T if gross unrelated income was $1,000+. Filing is how you claim deductions and show why no tax is owed.

Step-by-Step: How to Complete Form 990-T

Filling out Form 990-T might seem daunting, but it can be broken down into manageable steps. The form essentially asks for your total unrelated business income, the expenses you can deduct against that income, and then it computes the tax. Here’s how to approach each part:

Step 1: Gather the Necessary Information and Documents

Before diving into the form, collect all details related to your organization’s unrelated business activities for the year:

• Financial records for each unrelated business activity: revenue earned, invoices, sales records, etc. Identify the gross income from each activity.
• Expense records related to earning that income: for example, cost of goods sold, wages of employees in that activity, rent or utilities for areas used by the business, supplies, advertising costs, and other deductions directly connected to the unrelated business.
• If your organization had multiple unrelated businesses, organize the income and expense data by activity. (You’ll likely be filling out a separate Schedule A for each activity.)
• Prior year carryforwards: If you have any net operating losses (NOLs) from unrelated business activities in prior years that you haven’t fully used, have those figures ready. These can potentially offset current year UBTI (subject to the 80% limitation on post-2017 NOLs).
• Employer Identification Number (EIN): Ensure you have the organization’s EIN (for an IRA or trust, this might be a special EIN if filing separately).
• Basic info: Know the organization’s legal name, address, and the Business Code (NAICS code) for the primary unrelated business activity (the form will ask for a description and code of your principal unrelated trade or business).

Step 2: Fill In Organizational Information and Checkboxes

At the top of Form 990-T, fill out the header section:

• Name of your organization and address.
• EIN (do not use a Social Security Number; even an IRA or retirement trust needs its own EIN for filing).
• Check the applicable 501(c) box to indicate your organization’s exemption type (for example, 501(c)(3) for a charity, 501(c)(7) for a social club, etc.). If you’re a retirement plan or IRA, there are separate boxes to tick.
• The form will ask for the organization’s primary unrelated business activity on Line F. Write a brief description (e.g., “Operation of a souvenir gift shop”) and the corresponding NAICS code that best fits that activity.
• Item H: Indicate if this is a first-time 990-T filing for the organization and if the address or name has changed, etc., by checking the appropriate boxes.
• Don’t forget to specify the tax year (calendar year 20XX or fiscal year beginning and ending dates) at the top.

Step 3: Report Unrelated Business Income (Part I)

Part I of Form 990-T is essentially an income statement for your unrelated business activities:

• Line 1a – Gross Receipts or Sales: Enter the total gross income from your unrelated business activities. If you have only one unrelated trade or business, this might be your gross sales or revenue from that activity. If you have multiple activities, this will reflect the sum of gross receipts from all Schedules A (each Schedule A will detail an activity’s income and deductions). Note: If your unrelated trade involves selling products, your gross receipts will later be reduced by cost of goods sold in line 1c.
• Line 1b – Cost of Goods Sold: If applicable, enter the cost of goods sold (COGS) for sales of products. You calculate COGS on Schedule A, Part III for each business. For example, if you sell merchandise, include costs like inventory purchases in COGS. (If your unrelated income is from services or rent with no goods sold, COGS may be zero.)
• Line 1c – Net Gross Profit: The form subtracts line 1b from 1a to show gross profit.
• Lines 2–13 – Deductions: Here you list the allowable deductions directly connected to earning the unrelated income. These correspond to typical business expenses:
  • Compensation of officers (Line 2) – if any portion of officer or director salaries is allocated to the unrelated business activity.
  • Salaries and wages (Line 3) for employees engaged in the unrelated business.
  • Repairs and maintenance (Line 4) related to the business’s facilities or equipment.
  • Bad debts (Line 5) – unlikely for most nonprofits, but if you had uncollectible receivables from the unrelated trade.
  • Interest (Line 6) on debt attributable to the unrelated business.
  • Taxes and licenses (Line 7) – any state or local taxes, or licensing fees, for the unrelated activity.
  • Depreciation (Line 8) – depreciation of assets used in the unrelated business. (Attach Form 4562 if claiming depreciation.)
  • Advertising (Line 9) – costs of advertising the unrelated business’s products or services.
  • Pension, profit-sharing, and employee benefits (Line 10) – portions of employee benefits associated with the unrelated activity.
  • Other deductions (Line 12) – any other expenses (attach a statement itemizing them). This could include supplies, utilities, insurance, or miscellaneous costs solely related to the unrelated business.
• Total Deductions (Line 13): Sum of lines 2 through 12. This is the total of all business expenses you’re claiming against UBI.
• Line 14 – Unrelated Business Taxable Income Before NOL and Special Deduction: Subtract total deductions (line 13) from gross profit (line 1c). This is your preliminary taxable income from unrelated business activities before any NOL carryovers or the special $1,000 deduction.
• Line 15 – Net Operating Loss Deduction: If you have a net operating loss (NOL) carryover from a prior year’s unrelated business operations (or from another siloed activity that had a loss in a prior year), you can deduct it here (subject to limitations). Attach a statement showing the computation and year of each NOL utilized. Remember, post-2017 NOLs can only offset up to 80% of taxable income (line 14), and NOLs from separate businesses can only offset income from the same business.
• Line 16 – $1,000 Specific Deduction: Nearly every organization is allowed to deduct $1,000 here (it’s like a standard exemption for UBTI). Only one $1,000 deduction is permitted per organization, not per business activity. So generally, you will subtract $1,000 (unless you had less than $1,000 of UBTI to begin with, in which case you just reduce it to zero).
• Line 17 – Total Unrelated Business Taxable Income: This is the key result: Line 14 minus line 15 minus $1,000. It represents your net taxable UBTI for the year. If this number is zero or negative, you have no taxable income (and likely owe no UBIT, though you still file the form). If it’s positive, that amount will be subject to tax in Part II.

Note: If your organization has multiple distinct unrelated businesses, you must complete a Schedule A (Form 990-T) for each trade or business. Each Schedule A works like a mini Part I, computing the income and deductions for that particular activity. You then carry the resulting profit or loss from each Schedule A to the main Form 990-T. Crucially, losses from one unrelated activity cannot directly offset the income of another in the current year (due to the “silo” rules from the 2017 tax law). Instead, a loss stays with that activity as an NOL carryforward to future years of the same activity. So, on Form 990-T Part I, you effectively add up only the positive incomes from each Schedule A (and you’ll use any losses in future years via NOL deductions).

Step 4: Calculate the Tax (Part II – Tax Computation)

After determining the taxable income in Part I, move to Part II to figure the tax and any credits:

• Line 1 – Regular Tax: Calculate the basic income tax on the UBTI. For a corporate-type exempt organization (most 501(c) entities), the tax is a flat 21% of taxable income (line 17 from Part I). If the filer is a trust (like a retirement trust or a charitable trust), then trust tax rates (which are graduated) apply – trust rates hit 37% at very low income, but many IRA-related UBIT filings also use a flat 21% due to special rules for certain plans. In practice, unless you’re dealing with a complex trust situation, multiply UBTI by 21% to get the tax.
• Line 2 – Reserved: (Previously used for the now-defunct Alternative Minimum Tax for trusts; currently not applicable to most filers).
• Line 3 – Tax on Non-Compliant Facility Income: This line is for a special case: if your organization (like a social club or an association) had to pay a “proxy tax” on certain lobbying and political expenditures instead of notifying members (Section 6033(e)(2)), that proxy tax is calculated at 21% and entered here. If that scenario doesn’t apply, leave this blank.
• Line 4 – Total: Add lines 1 through 3. This is the total tax before credits.
• Lines 5-7 – Credits: If your organization is eligible for any tax credits, they come into play here:
  • Line 5 – Credit for small employer health insurance premiums (Form 8941): A small charity might claim this if it provides healthcare to employees and meets certain conditions.
  • Line 6 – Foreign tax credit (Form 1118 or 1116): Possibly relevant if your unrelated business paid foreign taxes (rare for most).
  • Line 7 – Other credits: This can include general business credits (from Form 3800) or other special credits. Realistically, most nonprofits won’t have many of these, but one example could be the credit for prior year minimum tax (if you ever paid AMT in the past as a trust).
• Line 8 – Total Tax After Credits: Subtract any credits (sum of lines 5-7) from line 4. This is your net tax liability.
• Line 9 – Section 511(t) Credits: (This is a new addition for certain educational institutions eligible for a credit relating to increases in UBIT from changes made by the Tax Cuts and Jobs Act. If applicable, the form instructions help compute this. Most orgs will leave it blank.)
• Line 10 – Total Tax After Section 511(t) Credit: Line 8 minus line 9. (For most, this is the same as line 8.)
• Line 11 – Other Taxes: Include here any other taxes your organization owes via the 990-T. This might be unusual items like recapture of certain credits or taxes on reinsurance entities, etc., as specified in the instructions. Most filers will have this as zero.
• Line 12 – Total Tax: Sum of lines 10 and 11. This is your final total UBIT tax.

Step 5: Payments and Refundable Credits (Part III)

Now report what you’ve already paid (if anything) and determine if you owe more or are due a refund:

• Line 1 – Estimated tax payments and credits: Enter any quarterly estimated UBIT payments the organization made for this year. Also include any overpayment from last year’s 990-T that you chose to credit forward.
• Line 2 – Tax paid with extension: If you filed Form 8868 for an extension and sent an advance payment of tax, put that amount here.
• Line 3 – Credit for small employer (Part I, Line 5): If you claimed the small employer health insurance premium credit on line 5, enter that amount here again (the form basically ensures you don’t double count it).
• Line 4 – Refundable credits: Certain newer clean energy credits or other credits can be “refundable” (meaning you get them paid out even if you owe no tax). If your org is claiming any of these via Form 990-T (for example, credits under Sections 6417 or 6418 where nonprofits can get direct payments), list them here as payments/credits.
• Line 5 – Total payments/credits: Sum of lines 1 through 4. This is how much you’ve already paid or are credited.
• Line 6a – Tax Due: If your total tax (line 12 of Part II) is more than your payments (line 5 of Part III), subtract and enter the difference on 6a. This is the amount you owe.
• Line 6b – Overpayment: If your payments (line 5) exceed the tax (line 12), subtract and enter the overpaid amount on 6b.
• Line 7 – Refund: From any overpayment, decide how much you want refunded. Enter that portion on line 7. (The IRS can direct-deposit the refund if you include bank info at the bottom of Part V.)
• Line 8 – Credit to next year: If you want to apply some or all of the overpayment to next year’s 990-T as a credit, enter that on line 8. (Line 7 and 8 should together equal the overpayment on 6b.)

If you have a tax due, be sure to pay it by the due date (the IRS expects payment by the original filing deadline, even if you extended the return). If you owe more than $500 and didn’t make estimated payments, you might get a penalty for underpayment.

Step 6: Signature and Schedules

The form must be signed by an officer of the organization (or a trustee, if it’s a trust). After Part III, you’ll see a signature area: an authorized official (president, treasurer, or another officer) should sign, date, and enter their title. If a paid preparer helped (like a CPA or tax professional), they’ll fill out the preparer section below with their information and PTIN.

Include all required schedules and attachments:

• Schedule A (Form 990-T) for each unrelated trade or business. Even if you have one, you’ll attach one Schedule A detailing that activity. Each Schedule A has Part I (income statement for that activity), Part II (deductions for that activity), and Part III (cost of goods sold, if any).
• Attach any needed forms for specific types of income or deductions:
  • If you had capital gains or losses from sale of assets used in the unrelated business, attach Schedule D (Form 1041 or 1120, as applicable).
  • If you sold any business property (equipment, etc.), attach Form 4797 (Sales of Business Property).
  • If claiming depreciation, attach Form 4562.
  • If claiming any tax credits on Part II, attach those credit forms (e.g., Form 8941 for small employer health credit, Form 3800 for general business credits).
  • If you listed “Other deductions”, attach an itemized statement describing them.
  • If you claimed an NOL deduction, attach a statement showing the NOL calculations (year of loss, amount, how much used).
• Double-check that each Schedule A’s totals roll up correctly into Form 990-T Part I. Ensure the EIN and name are on each attachment (or use the PDF attachment feature if e-filing).
• Public disclosure caution (for 501(c)(3) organizations): Remember that Form 990-T for charities is public. Avoid including any sensitive info that’s not asked for. (For example, if you attach statements, don’t include donor names or other confidential data that isn’t needed for the tax calculation.)

Review everything: Are the numbers consistent? Did you include the $1,000 deduction? Are schedules properly filled and attached? Once satisfied, send it off (e-file or via mail to the IRS center indicated in the instructions) and keep a copy for your records.

Example Scenarios: Form 990-T in Action

To make this more concrete, let’s look at a few common scenarios where a tax-exempt organization would need to file Form 990-T. These examples show how different situations are handled on the form:

Scenario 1: Charity with a Coffee Shop

Imagine Helping Paws Shelter, a 501(c)(3) nonprofit, runs a public coffee shop on the side to raise extra funds. The café is open daily, serves the general public, and employs paid staff. Here’s how this scenario plays out for Form 990-T:

Scenario

Form 990-T Treatment

The animal shelter operates a café open to the public, separate from its animal rescue mission. In 2025, the café earned $50,000 in sales, with $20,000 of ingredient and supply costs, and $15,000 in wages and other expenses.

The café’s net income is unrelated to the shelter’s exempt purpose, so it’s UBTI. On Form 990-T, Helping Paws Shelter completes a Schedule A for the café. They report $50,000 gross receipts and $20,000 cost of goods sold on Schedule A Part III, yielding $30,000 gross profit. Then they deduct the $15,000 of wages, rent, and other direct café expenses on Schedule A Part II. This leaves a $15,000 profit from the café on that Schedule A. The $15,000 is carried to Form 990-T Part I as unrelated business income. After the $1,000 specific deduction, taxable UBTI is $14,000. The shelter pays 21% tax on that amount (about $2,940). They file Form 990-T with Schedule A attached, reporting and paying the UBIT due.

Why is this UBTI? Running a coffee shop is a trade or business, it’s regularly carried on, and it’s not related to rescuing animals (selling lattes doesn’t further that charitable mission). So the income is taxable. (If the café were only open occasionally or staffed entirely by volunteers, it might qualify for exceptions — but in this case it operates like a normal commercial café.)

Scenario 2: Nonprofit with Multiple Unrelated Businesses

Now consider City Museum Foundation, a tax-exempt museum. It has two unrelated income streams:

1. A gift shop selling souvenirs to visitors (gross revenue $200,000, expenses $120,000).
2. A parking garage that the public can pay to use (revenue $100,000, expenses $80,000).

Both activities are not substantially related to the museum’s educational mission (they’re ancillary commercial activities). The museum must segregate these on the return:

Scenario

Form 990-T Treatment

A museum operates a gift shop and a public parking garage, generating income beyond its exempt purpose. For 2025, the gift shop netted $80,000 ($200k sales – $120k costs) and the parking garage netted $20,000 ($100k fees – $80k costs).

The museum files Form 990-T with two Schedule A attachments: one for the gift shop and one for the parking garage. On each Schedule A, it computes the profit: $80k for the gift shop, $20k for the garage. These are separate silos – the museum cannot offset a loss from one against profit of the other in the same year. The Schedule A results are transferred to Form 990-T Part I: total gross unrelated income $300,000, total deductions $200,000, yielding $100,000 net income. After the $1,000 specific deduction, UBTI is $99,000. The museum then calculates UBIT at 21%, owing about $20,790 in federal tax. Each activity’s details are clearly reported in its Schedule A, keeping the IRS informed of both revenue streams.

In this scenario, the museum properly reports both unrelated businesses. If one activity had a current-year loss (say the parking garage lost $5,000), that loss would not reduce the gift shop’s $80k profit on the 2025 return. Instead, the $5k would be an NOL carryforward for the garage activity to potentially offset its own profits in future years.

Scenario 3: Social Club with Investment Income

Consider the Sunset Riders Club, a 501(c)(7) social club (a nonprofit riding club whose exempt purpose is recreation for members). Social clubs are tax-exempt on their member-sourced income (like member dues and fees), but non-member income – including passive investment income – is taxable. In 2025, Sunset Riders Club earned $8,000 in dividends and interest from investments.

Scenario

Form 990-T Treatment

A tax-exempt social club brings in $8,000 of investment income (e.g. interest and dividends) from its reserve funds. This income is not from members and doesn’t further the club’s exempt purpose.

The club must file Form 990-T because it has over $1,000 of gross unrelated income. It reports the $8,000 of investment income on a Schedule A for “investment activities.” There are minimal expenses (say $200 of investment management fees), so net UBTI is $7,800. After the $1,000 specific deduction, $6,800 is taxable. Sunset Riders Club (being tax-exempt under 501(c)(7)) generally pays tax at corporate rates on its UBI. It calculates 21% of $6,800, owing about $1,428 in UBIT. The club files Form 990-T with that Schedule A, paying the tax. By doing so, it complies with UBIT rules applicable to social clubs.

This scenario highlights that not only charities face UBIT – other exempt organizations like clubs and even retirement accounts do as well. In the club’s case, all investment income (and any other non-member income) is treated as unrelated taxable income under IRS rules.

Federal vs. State UBIT: Key Differences and State Nuances

Filing Form 990-T takes care of your federal tax obligations on unrelated business income. Many states, however, also tax a nonprofit’s UBI under their state corporate income tax or franchise tax rules. Typically, if you file 990-T and owe UBIT federally, you should check if you need to file a similar return in each state where the income is earned. Here are two notable examples:

California: In California, tax-exempt organizations that have over $1,000 in gross unrelated business income from California sources must file Form 109 (California Exempt Organization Business Income Tax Return) with the Franchise Tax Board. The definition of UBI largely follows federal rules. California taxes this income at its corporate tax rate (8.84%) for nonprofit corporations (and at trust rates for trusts). The due date for Form 109 is the 15th day of the 5th month after the tax year (May 15 for calendar-year orgs, mirroring the federal deadline), and California automatically grants a 6-month filing extension (to Nov 15) provided the organization is in good standing (note: any tax due must still be paid by the original deadline). Also, California does not exempt charities from state income tax on UBI – even if you’re a California charity not required to pay the $800 franchise fee, you still must pay tax on unrelated business income via Form 109.

New York: New York State taxes UBI through its corporation franchise tax system. A New York–based nonprofit (or any exempt org earning unrelated income in NY) will generally file Form CT-13 (Unrelated Business Income Tax Return) if it has UBI over $1,000. New York’s rules align with federal UBI definitions, but the state tax rate can differ (the NY corporate franchise tax rate is 7.25% for most corporations as of recent years). The CT-13 is due the 15th day of the 5th month after the tax year (May 15 for calendar-year). If your nonprofit is formally exempt from New York franchise tax on its normal activities (via Form CT-247 approval), that exemption does not cover unrelated business income – you still pay tax on UBI. Additionally, New York City has its own tax (Unincorporated Business Tax) that can snag certain nonprofits’ business activities in the city, and other states like New Jersey, Illinois, etc., have their versions of UBI tax returns (e.g., IL-990-T for Illinois).

Bottom line: Always consider state and local filing requirements for UBI:

• If your organization earns unrelated income in a particular state, check that state’s tax agency for an exempt organization business income tax form.
• The state might use a different threshold (though $1,000 is common, matching the federal rule).
• State tax rates vary (some are flat, some match corporate or trust rates, others, like Texas, don’t have income tax but might include UBI in franchise tax calculations).
• Filing procedures (e.g., combined reporting if multiple entities, or electronic filing mandates) can differ.

By addressing state UBIT obligations (like the examples of CA and NY), you ensure the nonprofit isn’t caught off guard by a state tax notice down the line.

Common Mistakes to Avoid on Form 990-T

Filing Form 990-T accurately can save your organization from headaches. Watch out for these frequent mistakes:

• Not realizing an activity is taxable: Don’t assume that because you’re a nonprofit, all your income is tax-free. If an activity meets the UBI criteria (a trade/business, regularly carried on, not related to your mission), its net income is taxable. Example: Selling ad space in your charity’s newsletter is likely UBI, even if the funds support your mission. Ignoring it would be a mistake.
• Missing the filing requirement: Remember that the $1,000 threshold is based on gross receipts, not profit. An organization might say, “We didn’t make money on that fundraiser after expenses, so no need to file.” Wrong – if it was an unrelated trade that brought in $1,000+ (even if net profit was $0 or a loss), you must file Form 990-T. Filing in loss years is how you establish NOLs for the future (and it’s required by law above the threshold).
• Combining separate businesses incorrectly: If you have multiple unrelated ventures, be careful to report each separately with its own Schedule A. A common error is netting a profitable activity against a losing activity and reporting only the difference. The IRS disallows that now. Each business stands on its own. Make sure to silo your calculations and only consolidate profits on the main form. Losses stay in their lane as NOLs.
• Taking improper deductions: Only deduct expenses that are directly connected to the unrelated business income. If an expense benefits both your exempt functions and the unrelated activity, allocate it reasonably and only deduct the portion related to the UBI. Over-allocating expenses to UBI (to reduce tax) is risky; the IRS may challenge deductions that aren’t clearly connected to producing that income. Keep documentation for how you allocated costs.
• Forgetting the $1,000 deduction or misusing NOLs: Some filers overlook the special $1,000 deduction in Part I, which could make them overpay tax. Always subtract it (if you have at least $1k of income). On the other hand, some misunderstand net operating loss rules – for example, trying to fully offset current UBI with a prior loss when only 80% is allowable (for post-2017 NOLs). Use NOLs correctly: you can carry them forward indefinitely, but don’t exceed the taxable income limitation.
• Late filing or payment: Mark those deadlines. Form 990-T (for calendar-year orgs) is due May 15. If you’re late and owe tax, the penalty is typically 5% of the unpaid tax per month late (up to 25%). Even if you owe no tax, a $435 (approximate) minimum penalty can hit if you file more than 60 days late. Plus, interest accrues on any unpaid tax. Use Form 8868 to get an extension if needed (extension to file, not to pay!). And if you expect a significant UBIT bill, make quarterly estimated payments to avoid underpayment penalties.
• Ignoring state UBIT rules: Paying your federal UBIT is step one, but don’t forget states. A mistake is thinking “we’re federally tax-exempt, so the state won’t tax us.” As discussed, states like CA, NY, etc., require their own filings and taxes for UBI. Failing to file those could result in state penalties or jeopardize your state tax-exempt status. Always consider where you operate unrelated businesses.
• Not maintaining documentation and support: Treat the preparation of Form 990-T like a mini business tax return. Document your income calculations, cost allocations, and keep records of expenses. If the IRS ever inquires or audits, you’ll need to substantiate that, say, the $50,000 of expenses you deducted against UBI were legitimately connected to that UBI (and not part of your charitable program costs). Good records will back you up.
• Assuming small nonprofits or churches are off the hook: Even the little guys need to comply. Churches, which are excused from filing the usual Form 990, do have to file 990-T if they have UBI over the threshold. And even a tiny 501(c)(3) that normally files the 990-N e-Postcard must file a full Form 990-T for UBI. The IRS doesn’t provide a “postcard” version for UBI – so don’t overlook it due to organization type or size.

Avoiding these mistakes comes down to knowledge and careful reporting. When in doubt, consult the IRS instructions (Pub 598 is a great guide on UBIT) or seek advice from a nonprofit-savvy CPA. A well-prepared Form 990-T keeps your organization in compliance and free from unexpected tax woes.

Pros and Cons of Unrelated Business Activities for Nonprofits

Engaging in revenue-generating business activities can be a double-edged sword for a nonprofit. Here’s a look at the potential benefits and drawbacks of earning Unrelated Business Income (UBI):

Pros of Earning Unrelated Business Income	Cons of Earning Unrelated Business Income
Extra Funds for Your Mission: Brings in additional revenue that can be used to support the nonprofit’s programs and services, beyond what donations and grants provide.	UBIT Liability and Compliance: Any net profit from unrelated activities is taxed (21% federal, plus state taxes). This means filing Form 990-T, keeping separate accounting, and possibly hiring tax professionals – an added administrative burden.
Diversified Revenue Stream: Makes the organization less reliant on donations and grants. A successful unrelated business (like a museum café or product sales) can provide a steady income even when fundraising fluctuates.	Risk to Tax-Exempt Status: If unrelated business activities become too large a part of the organization’s focus (too much time and resources, relative to charitable activities), the IRS could question whether the organization is operating primarily for exempt purposes. Extreme cases risk loss of exemption.
Opportunity to Expand Reach: Some business ventures can actually complement the mission indirectly (e.g., a health charity selling healthy snacks – educating while earning). They can raise public awareness of the nonprofit and attract new audiences.	Public/Donor Perception: Stakeholders might be concerned if a charity seems “too commercial.” For example, donors might wonder why you’re running businesses or if their contributions are subsidizing those ventures. Transparency and communication are needed to manage expectations.
Use of Idle Resources: Nonprofits can leverage underutilized assets. If you have extra space, renting it out can earn income; if you have expertise, offering consulting services can monetize it. UBI allows monetizing assets that would otherwise sit idle.	Management Distraction: Operating a business requires focus, expertise, and time. It might distract leadership from the core mission. Board and staff must oversee pricing, marketing, customer service – tasks outside typical nonprofit administration – which can strain capacity.
Tax-Deductible Business Expenses: The organization can deduct expenses of the unrelated activity against that income. Also, if an unrelated venture incurs a loss, that loss isn’t wasted – it can be carried forward as an NOL to offset future UBI profits (though it can’t offset regular charitable income).	Additional Costs: Beyond taxes, unrelated businesses may necessitate new costs – separate insurance, marketing expenses, commercial licenses, or even unrelated business insurance. In some cases, forming a taxable subsidiary is advised, which comes with incorporation costs and separate filings.

In summary, running an unrelated business can provide valuable funding and opportunities, but it must be approached carefully. Many nonprofits handle this by forming a taxable subsidiary to house the business – the subsidiary pays its own taxes (like a normal company) and sends profits back to the nonprofit (as dividends). This approach can limit the nonprofit’s exposure and simplify compliance (the nonprofit itself might avoid filing 990-T if the business is entirely in the subsidiary). Whether done within the nonprofit or via a subsidiary, always weigh the financial gain against the complexity and ensure that the activity doesn’t overshadow your primary mission.

Form 990 vs. Form 990-T: What’s the Difference?

It’s easy to confuse the regular Form 990 (annual information return) with Form 990-T. Both are filings that many exempt organizations encounter, but they serve very different purposes. Here’s a quick comparison:

Form 990 (Information Return)	Form 990-T (UBI Tax Return)
Purpose: Reports the organization’s overall finances, programs, and governance to the IRS and the public. It’s an annual transparency report showing income (mostly tax-exempt income like donations, grants, program service revenue), expenses, assets, officer salaries, etc. No taxes are calculated on a Form 990 – it’s purely informational.	Purpose: Reports taxable income from any unrelated business activities and calculates the income tax due on that income. It’s more like a corporate tax return, but for the nonprofit’s side businesses. It includes only the revenues and expenses related to unrelated trades, and it results in a tax liability if there’s taxable profit.
Who Files: All tax-exempt organizations (except a few, like most churches) have to file some version of the Form 990 each year. Which version depends on size/type: small orgs file a 990-N e-Postcard, mid-sized file 990-EZ, large and complex ones file the full Form 990. (Private foundations file Form 990-PF.)	Who Files: Only those exempt organizations that have gross UBI of $1,000 or more. If a nonprofit has no unrelated business income, it does not file a 990-T. This form is also used by certain retirement accounts and trusts that are tax-exempt but earn UBI.
Public Disclosure: Yes – Form 990 (and 990-PF/990-EZ) are public documents. The IRS makes them available, and websites like GuideStar publish them. Donor names are redacted on the public copy, but a lot of info (like top salaries, contractors, etc.) is open to inspection.	Public Disclosure: For 501(c)(3) charities, yes. Since 2006, charities must make their 990-T filings public upon request (and the IRS may release them). For other exempt orgs (501(c)(7), (c)(6), etc.), the 990-T is not public. So, if a charity has UBI, anyone can eventually see its 990-T, which will show the nature of its unrelated businesses.
Content: The full Form 990 is quite comprehensive: it has sections on program accomplishments, a detailed statement of revenue (including donations, grants, program revenue, investment income, etc.), a breakdown of expenses (program vs. admin vs. fundraising), balance sheet items, and numerous schedules for specific reporting (like Schedule A for public charity status, Schedule B for large donors, etc.). It provides a broad picture of the organization’s financial health and operations.	Content: Form 990-T is focused narrowly on the financials of the unrelated business activities. It includes Parts I, II, III as described (income, tax computation, payments) and requires attaching details (Schedule A for each business, and any relevant forms for items like depreciation or capital gains). It does not cover the organization’s donations, grants, or overall expenses – only those tied to generating UBI. It’s much shorter than a full Form 990 (often just 2 pages plus schedules).
Filing Thresholds & Requirements: Filing is required every year regardless of income (except very small orgs use the e-Postcard). Late filing or failing to file Form 990 for 3 consecutive years results in automatic loss of tax-exempt status. There are penalties for late filing based on gross receipts. Extensions are available (Form 8868) for 990 as well.	Filing Thresholds & Requirements: Only required when UBI exists above $1,000. It’s possible for an organization to not need a Form 990 (like a church), yet still have to file a 990-T if it has unrelated business income. Extensions via Form 8868 cover 990-T as well. Failing to file 990-T when required can bring monetary penalties, but it does not directly cause loss of status unless it’s part of broader non-compliance.

In short, Form 990 is about transparency of all your operations (no tax due), while Form 990-T is about paying tax on business activities. Many organizations file both: e.g., a university will file a Form 990 detailing its finances and also file a 990-T if it has unrelated business income like advertising or a pizza shop on campus. Remember to file each form as applicable – satisfying one doesn’t cover the other.

FAQs (Frequently Asked Questions)

Q: Do all nonprofits have to file Form 990-T?
A: No. Only tax-exempt organizations that earn $1,000 or more in gross unrelated business income need to file a Form 990-T for that year. No unrelated income means no 990-T.

Q: Can a church avoid filing Form 990-T?
A: No. Churches are exempt from filing the Form 990 information return, but yes – they must file Form 990-T if they have sufficient unrelated business income (e.g. from a bookstore or rental activity).

Q: Is the tax rate on unrelated business income the same for all organizations?
A: Yes. It’s generally taxed at the flat corporate rate of 21% for tax-exempt corporations. Trusts use trust tax brackets for UBI, but in practice many trust UBIT cases also end up taxed near 21%.

Q: Does rental income count as unrelated business income?
A: No (usually). Rental income from real property (like leasing out a building) is typically excluded from UBTI. Yes, however, if the rental involves significant services (like catering, cleaning) or if it’s debt-financed property, portions of it can become UBTI.

Q: Are passive investments by a charity (interest, dividends) subject to UBIT?
A: No. For 501(c)(3) charities and most exempt orgs, passive income (interest, dividends, etc.) is excluded from UBTI (unless it’s debt-financed or from a controlled subsidiary). But for 501(c)(7) clubs, yes, investment income is taxable.

Q: If our unrelated business had a loss, do we still need to file 990-T?
A: Yes. If gross unrelated income was ≥ $1,000, you must file even if it’s a net loss. No tax is due on a loss, but you can carry the loss forward to offset future UBI.

Q: Are there penalties if we don’t file Form 990-T when required?
A: Yes. The IRS imposes penalties for late filing (5% of tax per month, up to 25%). Even if no tax is owed, a minimum ~$435 penalty may apply if filing is over 60 days late.

Q: Do we need to attach our Form 990 when we file Form 990-T?
A: No. They are separate filings. Form 990-T stands alone with its schedules. If e-filing, it’s submitted independently. The IRS doesn’t require your Form 990 to accompany 990-T.

Q: Is Form 990-T only for federal taxes?
A: Yes. Form 990-T goes to the IRS for federal UBIT. For state taxes, you’ll use state-specific forms (like CA Form 109, NY CT-13, etc.) to report unrelated income to that state’s tax authority.

Q: Can we avoid UBIT by running the business under a separate corporation?
A: Yes. Many nonprofits use a separate taxable subsidiary to run an unrelated business. The subsidiary pays tax on its profits, then passes remaining funds to the nonprofit (as tax-free dividends), protecting the nonprofit’s exemption.

Q: Does filing Form 990-T affect our charity’s public image?
A: Yes. Because a 501(c)(3)’s 990-T is public, others will see your unrelated business activities. It’s not necessarily a negative — just be transparent and ready to explain how those activities support your mission