Nonprofit Tax Form 990-T

Most nonprofits only file tax form 990 declaring financial information then made available to the government and the public. But some nonprofits occasionally will engage in for-profit business. In this case, form 990-T must be filed.

If the nonprofit makes some form of profit, they are held responsible to pay corporate income taxes. Tax Form 990-T is for reporting unrelated business income. Any income is considered unrelated that is generated by a business that is unrelated to the exempt function of the nonprofit.

The IRS requires this form from all nonprofits that have $1,000 or more in gross receipts from an unrelated business transaction. The following information is covered on the Form 990-T. Forms can be filed electronically or in paper form.

  • Unrelated Business Income

If merchandise is sold or a service provided that is unrelated to the cause of the nonprofit and is generated on a regular basis then it must be filed.

  • Unrelated Business income Tax Liability

The  tax liability  is the amount over $1,000 that your nonprofit earns for unrelated business transactions. This involves all gross income less deductions directly connected with making income.

  • Proxy Tax Liability

This is primarily for lobbying and political campaigning activities by certain membership associations holding the tax-exempt status like 501 (c)4, 501(c)(5), and 501(c)(6).

Engaging in some for-profit activity is permissible by the IRS for nonprofit organizations. But engaging in an excessive amount, more than 50% of its business transactions, can put an organization at risk of changing its status from nonprofit to for-profit.