The IRS posted revised draft instructions to the 2018 Form 990-T, “Exempt Organization Business Income Tax Return,” that contains several notable changes from prior draft versions.
The first draft of the 2018 Form 990-T instructions was released in October 2018, and the most recent version of the draft Form 990-T instructions [PDF 523 KB] was posted with a “watermark” date of March 7, 2019. The revised draft instructions include a statement that they are not to be relied upon for filing purposes and are subject to change and to OMB approval before being officially released.
The final version of the 2018 Form 990-T [PDF 231 KB] was posted by the IRS on January 8, 2019.
Significant updates to the Form 990-T draft instructions include the following.
The draft instructions previously required an organization with more than one unrelated trade or business, which now must separately determine its unrelated business taxable income (UBTI) for each such unrelated trade or business, to allocate its charitable contribution deductions among the separate trades or businesses “using any reasonable method.” Neither the draft instructions nor the draft version of Form 990-T itself appeared to permit charitable contribution deductions to be reported in Part III of the Form 990-T and taken against increases in UBTI by amounts paid or incurred for certain fringe benefits under section 512(a)(7) (discussed below) or, more generally, against total UBTI.
By contrast, the most recent draft instructions provide that an organization may report the charitable contribution deduction in Part II of the Form 990-T “in any manner that results in full use of the allowable charitable deduction.” Moreover, if after taking the charitable contribution deductions against the unrelated business income of one or more of its separate trade or businesses, an organization still has all or a portion of its allowable charitable contribution deductions remaining, the draft instructions permit the organization to use these remaining deductions to offset any increase in UBTI reported in Part III of the Form 990-T as a result of section 512(a)(7)—the new provision that increases UBTI by amounts paid or incurred by qualified transportation fringes.
This two-step process for reporting charitable contribution deductions most likely reflects the fact that the IRS did not have time to change the 2018 Form 990-T itself to permit reporting of all charitable contribution deductions in Part III.
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