Thursday, November 1, 2018
The IRS recently released draft instructions for Form 990-T that provide some insights into how the Service is planning to apply new unrelated business income tax provisions 512(a)(6) (siloing of unrelated trades and businesses) and 512(a)(7) (taxation of costs incurred for certain fringe benefits). With respect to 512(a)(6), the instructions relate to the new Schedule M (not yet released), which organizations are instructed to use if they have reportable income from more than one unrelated trade or business. They are further instructed to follow the instructions for reporting a single trade or business provided for Parts I and II of the main form, and also to attach statements as necessary to replicate the information provided on Schedules A through K for each separately reported trade or business (see page 11 of the draft instructions). While not stated in the instructions, presumably tax-exempt organizations should rely upon IRS Notice 2018-67 to determine what constitutes a separate trade or business for these purposes, which we blogged about previously.
As for 512(a)(7), the instructions provide (on page 19) the following relating to Line 34 of the draft Form 990-T for 2018:
Line 34. Enter the amount paid or incurred for disallowed fringes (as defined in section 132(f)), or any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)), for which a deduction is not allowable by reason of section 274. Do not include amounts directly connected with an unrelated trade or business which is regularly carried on.
The also provide the following (on page 5) for organizations only required to file Form 990-T because of 512(a)(7):
Organizations that are required to file Form 990-T only because they have UBTI in excess of $1,000 under section 512(a) (7) for expenses for certain qualified transportation fringe benefits must complete the following.
• The heading (above Part I) except C, E, H, and I;
• Part III and IV (complete only the relevant lines); and
• Signature area.
For all organizations, the instructions (on page 1) clarify that they only have to file a Form 990-T "[i]f the sum of gross income from a regularly conducted unrelated trade or business . . . and unrelated business taxable income under section 512(a)(7) attributable to expenses for certain qualified transportation fringe benefits is $1,000 or more."