The passing of the Tax Cuts and Jobs Act has incited changes to Form-990T to address how unrelated business taxable income (UBTI) will be reported going forward. Recently, the Internal Revenue Service released a draft of the 2018 form. Here are some of the most significant changes:

  • Separate reporting of unrelated trade or businesses. Organizations with multiple unrelated trades or businesses must also complete a Schedule M, in addition to the Form 990-T. Draft instructions indicate that for each unrelated trade or business, Part I and Part II on page 1 of the Form 990-T must be completed, while attaching Schedule M. Also, any statements required by Schedule A through K must be attached, as necessary.
  • Increase in UBTI from qualified fringe benefits. It appears the amount paid for disallowed fringe benefits, such as transportation, is added to taxable income after consideration of separate reporting of trades of businesses, but before the application of net operating losses (NOLs) and the $1,000 deduction. However, it is important to note that an organization with UBTI of $1,000 or more is still required to file Form 990-T even if its UBTI is attributed to Section 512(a)(7).
  • Carrying forward NOL. It was already known that post-2017 NOL for a given unrelated activity could only be carried forward to offset taxable income for the activity that generated the post-2017 NOL. But the draft instructions adds a new wrinkle to NOL usage. Pre-2018 accumulated NOL may still be applied to offset post-2017 UBI, but only after NOL generated by that activity post-2017 is used up. This change may mean that an organization’s cumulative pre-2018 NOL could expire since this approach eliminates the first in first out approach we’re accustomed to applying to NOL. However, it is unlikely that an unrelated activity that historically generated taxable income will generate a NOL in the future.

Other changes to the draft form include a change to the calculation of tax liability reflecting the new flat 21 percent rate and the elimination of the alternative minimum tax for corporations.

If you have questions about the impact of tax reform on your organization, please contact Doeren Mayhew’s tax advisors today.