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.
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.
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.
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.