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Form 990-T corporate filers may apply blended rate to UBTI for FY 2017

Form 990-T corporate filers blended rate to UBTI

The IRS today issued a reminder that Form 990-T corporate filers may apply a blended rate to their unrelated business taxable income (UBTI) for the entire 2017 tax year—including any UBTI from amounts paid or incurred after December 31, 2017, that increase UBTI under new section 512(a)(7).

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Changes introduced in 2017 U.S. tax law

The IRS release explains that the U.S. tax law enacted in December 2017—(Pub. L. No. 115-97) the law that is at times referred to as the “Tax Cuts and Jobs Act” (TCJA)—introduced a flat 21% corporate tax rate for tax years beginning after December 31, 2017. However, corporations with fiscal tax years beginning in 2017 and ending in 2018 calculate their tax by blending the rates in effect before 2018 with the rate in effect after 2017. An exempt organization that is a corporation with a 2017 fiscal year calculates its tax liability by applying the pre-2018 rate and the post-2017 rate to the corporation’s taxable income for the entire tax year. It then prorates those amounts based on the number of days in each period relative to the total days in the tax year. The sum of those results yields a blended rate. The blended rate may be greater or less than the corporate tax rate of 21%. 

The 2017 tax law also added section 512(a)(7) that increases an exempt organization’s UBTI by any amount paid or incurred after December 31, 2017, for:

  • Any qualified transportation fringe
  • Any parking facility used in connection with qualified parking
  • Any on-premises athletic facility for which a deduction is not allowable because of section 274

Organizations with a fiscal tax year beginning in 2017 are directed to enter any such increase in UBTI on line 12 of the 2017 Form 990-T.

 

For more information, contact a tax professional with KPMG’s Washington National Tax practice:

Ruth Madrigal | +1 202 533 8817 | ruthmadrigal@kpmg.com

Preston Quesenberry | +1 202 533 3985 | pquesenberry@kpmg.com

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