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IRS releases revised Form 990-T draft instructions for 2018

IRS releases revised Form 990-T draft instructions for

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.

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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.

Updates to Form 990-T draft instructions

Significant updates to the Form 990-T draft instructions include the following.

Full use of allowable charitable contribution deductions

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.

Other changes

  • Enhanced charitable contribution deduction: The instructions now state that “An increased limitation may be available for cash contributions under section 170(b)(1)(G)” for tax-exempt trusts. Section 170(b)(1)(G), as amended by the U.S. tax law enacted in December 2017 (Pub. L. No. 115-97), provides an increased percentage limitation for charitable contributions of cash made by individuals to public charities and certain private foundations to 60% (from the previous 50% limitation). While tax-exempt trusts generally are subject to the same charitable contribution percentage limitations as individuals, there was some question as to whether they would be able to use the increased limitation given that section 512(b)(11) (which authorizes charitable contribution deductions against UBTI for tax-exempt trusts) was not amended to cross-reference section 170(b)(1)(G) (providing the increased limitation). The clarification in the instructions suggests that tax-exempt trusts may be able to benefit from the increased limitation after all. 
  • NAICS codes: The instructions now inform a filing organization that the NAICS codes provided in the instructions “may be relied on as a reasonable, good-faith interpretation under Notice 2018-67,” which provides interim and transition guidance for organizations with more than one unrelated trade or business.

 

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

Ruth Madrigal | +1 202 533 3800 | ruthmadrigal@kpmg.com

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

Randall Thomas | +1 202 533 3786 | randallthomas@kpmg.com

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