Many nonprofits don’t realize they need to file Form 990-T when they earn income that’s not related to their mission. Since 2021, the IRS has made filing rules stricter and started enforcing them more closely. Even small amounts of unrelated income can lead to penalties or put your tax-exempt status at risk.

Quick Takeaways:

• If your nonprofit earns $1,000+ from unrelated business activities, you may need to file Form 990-T.
• Unrelated Business Income Tax (UBIT) applies to income from regularly conducted activities not tied to your mission.
• Common UBIT sources include advertising, rental income from debt-financed property, and certain K-1 investments.
• The IRS now requires electronic filing and activity-by-activity reporting on Schedule A.
• Failing to file can result in penalties or risk to your tax-exempt status—even for small amounts of income.

What Is Unrelated Business Income (UBIT)?

UBIT, or Unrelated Business Income Tax, applies when an exempt organization earns income from a trade or business that is:

• Regularly carried on, and
• Not substantially related to its exempt purpose (e.g., charity, education, religion)

If this applies to your nonprofit, you must report that income using Form 990-T.

When Does a Nonprofit Need to File Form 990-T?

Your organization must file Form 990-T if it has:

• $1,000 or more in gross income from unrelated business activities during the year
• Even if you had losses, filing allows you to carry them forward to offset future unrelated income

Common UBIT Examples:

• Advertising income from websites, newsletters, or event programs
• Rental income from debt-financed property
• Alternative investments that generate a K-1 with UBIT (see Line 20V or K-1 notes)
• Foreign investments, which may require filing additional IRS forms

If you receive a K-1 with UBIT or foreign income disclosures, consult a tax advisor. These are red flags for filing.

What’s New with Form 990-T?

Recent changes to Form 990-T you should be aware of:

• Electronic Filing Is Mandatory
  Paper submissions are no longer accepted. All Form 990-T filings must be submitted electronically through the IRS system or authorized providers.
• Activity-by-Activity Reporting
  Starting in 2020, each unrelated trade or business must be reported separately on Schedule A of Form 990-T. This allows the IRS to evaluate each activity on its own merit.

FAQ

Q: Can I deduct expenses from unrelated business income?
A: Yes, direct expenses related to earning UBI can reduce the taxable amount.

Q: What if I have a loss from UBIT activity?
A: File anyway. You may be able to carry forward the net operating loss to offset future unrelated income.

Q: What’s the penalty for not filing Form 990-T?
A: You could face monetary penalties and potentially risk your tax-exempt status.

Q: How do I know if a foreign investment triggers extra reporting?
A: Review your Schedule K-1 notes or speak with a tax advisor about foreign corporations and potential forms like 5471 or 926.

Need Help Navigating UBIT?

If you're unsure whether your organization needs to file Form 990-T or what income qualifies as UBIT, you're not alone. We can help to ensure your nonprofit stays compliant and tax-efficient.