For institutions with more than one unrelated business activity – don’t count “parking/transportation fringes” – there is a new reporting regime for Form 990-T that involves a NEW Schedule M (Form 990-T).
Denali Christian College (DCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii). They are required to file Form 990 annually.
DCC has three separate unrelated business activities, historically reported annually on their Form 990-T: rental of personal property, oil and gas royalties, and losses from a partnership Schedule K-1. In the past, they’ve been able to “net” losses (specifically, from partnership K-1) against profits from other activities – no more. Because of I.R.C. Section 512(a)(6) (added by the TCJA), DCC now has to “silo” their unrelated business activities.
On our monthly video call, the DCC Accounting Team asks us, “Okay, we get it, but how do we report the four separate lines of unrelated business on Form 990-T going forward?”
“You only have three separate, unrelated activities,” we answer.
“No, four. Equipment rentals, oil and gas, the Z-tech partnership K-1, and parking.”
“Well, according to the IRS, the ‘parking increase’ is not counted as a separate activity for silo-ing purposes. It’s reported alone – after the summary of siloed, profitable unrelated activities – on Form 990-T, Part III, Line 34.”
“Okay,” they say, “where and how do we report the three separate activities?”
“You use the new Schedule M.”
“You mean that form where we report contributions of stocks, cars, and taxidermy?”
“Great observation, but that’s the Schedule M for Form 990. Now, there’s a new Schedule M for Form 990-T. And, it’s a one-page form that looks almost exactly like Form 990-T, page 1.”
“So we use a separate Schedule M for each separate activity?” The DCC team asks.
“Yes, after you put one of the activities on Form 990-T, Parts I and II (page 1), you put each additional activity on a separate Schedule M – use as many as needed.”
“Okay. So, we only put the revenues and expenses applicable to each separate activity on it’s own form?”
“Yes. And, some – if not most – expense items (deductions in Part II) will require reasonable allocations between activities. Then, when each activity is separately reported on Form 990-T, page 1 and/or Schedule M, you only bring those that show a profit forward to Form 990-T, Part III, Line 33. This is going to require several attachments or statements to explain and clarify.”
“This is sounding complicated – and time-consuming,” they say.
“True. And, we haven’t even talked about pre-2018 net operating losses and post-2017 NOLs. Some institutions will find themselves spending a lot more time, effort, and money on Form 990-T than on their Form 990.”
From 2018 Form 990-T Instructions:
Schedule M. Unrelated Business Taxable Income for Unrelated Trade or Business
An organization with more than one unrelated trade or business should complete Part I and Part II on page 1 of Form 990-T and complete and attach a separate Schedule M for each additional unrelated trade or business. Report the sum of the unrelated business taxable income from line 32 of Form 990-T and each Schedule M on Part III, line 33. For an organization filing one or more Schedules M, if line 32 of Form 990-T or any Schedule M is less than zero, do not include it in the sum reported on Part III, line 33.
When completing Schedule M, refer to the instructions for Parts I and II for the corresponding lines on Schedule M. Complete only the lines relevant to the unrelated trade or business being reported on Schedule M. Complete and attach statements containing the information required by Schedules A through K as necessary. Filers may fill in blank copies of Schedules A through K for this purpose. The statements should be labeled at the top to identify the trade or business to which they relate and should be submitted behind the applicable Schedule M.
If more space is needed on Schedule M, attach separate sheets using the same size and format as the printed forms. If there are supporting statements and attachments, label the filer’s name, EIN, and identify the unrelated trade or business (Schedule M) to which they are related, and submit them immediately behind Schedule M.
- If your school has more than one unrelated business activity, you will need to employ the NEW Schedule M (Form 990-T) to report each activity separately.
- The new Schedule M is a one-page form that looks almost identical to Form 990-T, page 1.
- For now, the definitions for “separate” activities come from IRS Notice 2018-67 and advise the use of NAICS 6-digit codes – all 1,057 of them.
- Any activity that shows a “bottom line” of less than zero – a loss for the tax year – is not included in the summary amount reported on Form 990-T, Part III, Line 33, the amount that becomes (along with the increase from parking/transportation fringes), less applicable NOL’s and the “specific deduction,” unrelated business taxable income.
Specific questions? Email Dave Moja
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.
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