Section 501(c)(3) organization.   Section 501(c)(3) describes certain organizations which are exempt from taxation under section 501(a). A 501(c)(3) organization is an organization organized and operated exclusively for charitable purposes.

Annual return.    An annual return is an exact copy of the Form 990-T that was filed with the IRS including all schedules and attachments. It also includes any amendments to the original return (amended return).

  By annual return, we mean any annual return (defined above) that is not more than 3 years old from the later of:

Directly connected expenses.   To be deductible in computing unrelated business taxable income, expenses, depreciation, and similar items must qualify as deductions allowed by section 162, 167, or other relevant provisions of the Code, and must be directly connected with the carrying on of an unrelated trade or business activity.

  To be directly connected with the carrying on of a trade or business activity, expenses, depreciation, and similar items must bear a proximate and primary relationship to the conduct of the activity. For example, where facilities and/or personnel are used both to carry on exempt activities and to conduct unrelated trade or business activities, expenses and similar items attributable to such facilities and/or personnel must be allocated between the two uses on a reasonable basis. The portion of any such item allocated to the unrelated trade or business activity must bear a proximate and primary relationship to that business activity.

Not substantially related to.   Not substantially related to means that the activity that produces the income does not contribute importantly to the exempt purposes of the organization, other than the need for funds, etc. Whether an activity contributes importantly depends in each case on the facts involved.

Trade or business.   A trade or business is any activity carried on for the production of income from selling goods or performing services. An activity does not lose its identity as a trade or business merely because it is carried on within a larger group of similar activities that may or may not be related to the exempt purpose of the organization. If, however, an activity carried on for profit is an unrelated trade or business, no part of it can be excluded from this classification merely because it does not result in profit.

Unrelated trade or business income.   Unrelated trade or business income is the gross income derived from any trade or business (defined earlier) that is regularly carried on, and not substantially related to (defined earlier), the organization's exempt purpose or function (aside from the organization's need for income or funds or the use it makes of the profits).

  Generally, for section 501(c)(7), (9), or (17) organizations, unrelated trade or business income is derived from nonmembers with certain modifications (see section 512(a)(3)(A)).

  For a section 511(a)(2)(B) state college or university, unrelated trade or business income is derived from activities not substantially related to exercising or performing any purpose or function described in section 501(c)(3).

  An unrelated trade or business does not include a trade or business:

Extension.   Corporations may request an automatic 6-month extension of time to file Form 990-T by using Form 8868, Application for Extension of Time To File an Exempt Organization Return.

  Trusts may request an automatic 3-month extension of time to file by using Form 8868. Also, if more than the initial automatic 3 months is needed, trusts may file a second Form 8868 to request that an additional, but not automatic, 3-month extension be granted by the IRS.

Amended return.   To correct errors or change a previously filed return, write “Amended Return” at the top of the return. Also, include a statement that indicates the line number(s) on the original return that was changed and give the reason for each change. Generally, the amended return must be filed within 3 years after the date the original return was due or 3 years after the date the organization filed it, whichever is later.

Private delivery services (PDSs).   In addition to the United States mail, exempt organizations can use certain PDSs designated by the IRS to meet the “timely mailing as timely filing/paying” rule for tax returns and payments. These private delivery services include only the following:

  The private delivery service can tell you how to get written proof of the
mailing date.

  

Private delivery services cannot deliver items to P.O. boxes. You must use the U.S. Postal Service to mail any item to an IRS P.O. box address.

The organization must make electronic deposits of all depository taxes (such as employment tax, excise tax, unrelated business income tax) using the Electronic Federal Tax Payment System (EFTPS) in 2007 if:

If an organization is required to use EFTPS and fails to do so, it may be subject to a 10% penalty. If an organization is not required to use EFTPS, it may participate voluntarily. To enroll in or get more information about EFTPS, call 1-800-555-4477. To enroll online, visit www.eftps.gov.

Depositing on time.    For EFTPS deposits to be made timely, the organization must initiate the transaction at least 1 business day before the date the deposit is due.

If the organization does not use EFTPS, deposit unrelated business income tax payments (and estimated tax payments) with Form 8109, Federal Tax Deposit Coupon. If you do not have a preprinted Form 8109, you may use Form 8109-B to make deposits. You can get this form only by calling 1-800-829-4933. Be sure to have your EIN ready when you call.

Do not send deposits directly to an IRS office; otherwise, the organization may have to pay a penalty. Mail or deliver the completed Form 8109 with the payment to an authorized depositary (such as a commercial bank or other financial institution authorized to accept federal tax deposits).

Make checks or money orders payable to the depositary. To help ensure proper crediting, write the organization's EIN, the tax period to which the deposit applies, and “Form 990-T” on the check or money order. Be sure to darken the “990-T” box under “Type of Tax” and the appropriate “Quarter” box under “Tax Period” on the coupon. Records of these deposits will be sent to the IRS. For more information, see “Marking the Proper Tax Period” in the instructions for Form 8109.

If the organization prefers, it may mail the coupon and payment to: Financial Agent, Federal Tax Deposit Processing, P.O. Box 970030, St. Louis, MO 63197. Make the check or money order payable to “Financial Agent.”

For more information on deposits, see the instructions in the coupon booklet (Form 8109) and Pub. 583, Starting a Business and Keeping Records.

If the organization owes tax when it files Form 990-T, do not include the payment with the tax return. Instead, mail or deliver the payment with Form 8109 to an authorized depositary, or use the EFTPS, if applicable.

Interest.   Interest is charged on taxes not paid by the due date even if an extension of time to file is granted. Interest is also charged on penalties imposed for failure to file, negligence, fraud, substantial valuation misstatements, and substantial understatements of tax from the due date (including extensions) to the date of payment. The interest charge is figured at the underpayment rate determined under section 6621.

Late filing of return.   An organization that fails to file its return when due (including extensions of time for filing) is subject to a penalty of 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a return that is more than 60 days late is the smaller of the tax due or $100. The penalty will not be imposed if the organization can show that the failure to file on time was due to reasonable cause. Organizations that file late should attach a statement explaining the reasonable cause.

Late payment of tax.   The penalty for late payment of taxes is usually ½ of 1% of the unpaid tax for each month or part of a month the tax is unpaid. The penalty cannot exceed 25% of the unpaid tax. The penalty will not be imposed if the organization can show that the failure to pay on time was due to reasonable cause.

Estimated tax penalty.   An organization that fails to make estimated tax payments when due may be subject to an underpayment penalty for the period of underpayment. Generally, an organization is subject to this penalty if its tax liability is $500 or more and it did not make estimated tax payments of at least the smaller of its tax liability for 2006, or 100% of the prior year's tax. See section 6655 for details and exceptions.

  Form 2220, Underpayment of Estimated Tax by Corporations, is used by corporations and trusts filing Form 990-T to see if the organization owes a penalty and to figure the amount of the penalty. Generally, the organization is not required to file this form because the IRS can figure the amount of any penalty and bill the organization for it. However, even if the organization does not owe the penalty, you must complete and attach Form 2220 if either of the following applies:

  If you attach Form 2220, be sure to check the box on line 46, page 2, Form 990-T, and enter the amount of any penalty on this line.

Trust fund recovery penalty.   This penalty may apply if certain excise, income, social security, and Medicare taxes that must be collected or withheld are not paid to the United States Treasury. These taxes are generally reported on:

  The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to have been responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. The penalty is equal to the unpaid trust fund tax. See the instructions for Form 720, Pub. 15 (Circular E), Employer's Tax Guide, or Pub. 51 (Circular A), Agricultural Employer's Tax Guide, for details, including the definition of responsible persons.

Other penalties.   There are also penalties that can be imposed for negligence, substantial understatement of tax, reportable transactions understatements, and fraud. See sections 6662, 6662A, and 6663.

If the amount on line 13, column (A), Part I, is more than $10,000, complete all lines and schedules that apply.

If Part I, line 13, column (A) is $10,000 or less, then complete:

Filers with $10,000 or less on line 13, column (A) do not have to complete Schedules A through K (however, refer to applicable schedules when completing column (A) and in determining the deductible expenses to include on line 13 of column (B)).

Organizations that are required to file Form 990-T only because they are liable for the proxy tax on lobbying and political expenditures must:

Organizations that are required to file Form 990-T only because they are liable for recapture taxes, the section 1291 tax, or other items listed in the instructions for line 42 must:

If your only reason for filing a Form 990-T is to claim a refund, complete the following steps:

Forms W-2 and W-3.   Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements. Use these forms to report wages, tips, other compensation, withheld income taxes, and withheld social security/Medicare taxes for employees.

Form 720.   Use this Form 720, Quarterly Federal Excise Tax Return, to report environmental excise taxes, communications and air transportation taxes, fuel taxes, manufacturers taxes, ship passenger tax, and certain other excise taxes.

  

See Trust fund recovery penalty on page 4.

Form 926.   File Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, if the organization is required to report certain transfers to foreign corporations under section 6038B.

Form 940 or Form 940-EZ.   The organization must file Form 940 or Form 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return, if it is liable for FUTA tax.

Form 941 and Form 943.   The organization must file Form 941, Employer's QUARTERLY Federal Tax Return, or Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, to report income tax withheld, and employer and employee social security and Medicare taxes. Also, see Trust fund recovery penalty on page 4.

Form 945.   Use Form 945, Annual Return of Withheld Federal Income Tax, to report income tax withheld from nonpayroll distributions or payments, including pensions, annuities, IRAs, gambling winnings, and backup withholding.

Form 1098.   Use Form 1098, Mortgage Interest Statement, to report the receipt from any individual of $600 or more of mortgage interest (including points) in the course of the organization's trade or business and reimbursements of overpaid interest.

Forms 1099-A, B, DIV, INT, LTC, MISC, MSA, OID, R, and S.   Organizations engaged in an unrelated trade or business may be required to:

  

When filing the above noted information returns the organization must also file Form 1096, Annual Summary and Transmittal of U.S. Information Returns.

Form 4466.   Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund, if the organization overpaid its estimated tax for the year by at least 10% of its expected income tax liability and at least $500.

Form 5498.   Use Form 5498, IRA Contribution Information, to report contributions (including rollover contributions) to any IRA, including a SEP, SIMPLE, Roth IRA, and to report Roth IRA conversions, IRA recharacterizations, and the fair market value of the account.

Form 5498-ESA.   Use Form 5498-ESA, Coverdell ESA Contribution Information, to report contributions (including rollover contributions) to and the fair market value of a Coverdell education savings account (ESA).

Form 5498-SA.   Use Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, to report contributions to an HSA or Archer MSA and the fair market value of an HSA, Archer MSA, or Medicare Advantage MSA. For more information see the general and specific Instructions for Forms 1099-SA and 5498-SA.

Form 5713.   File Form 5713, International Boycott Report, if the organization had operations in, or related to, certain “boycotting” countries.

Form 6198.   File Form 6198, At-Risk Limitations, if the organization has a loss from an at-risk activity carried on as a trade or business or for the production of income.

Form 8275 and 8275-R.   Taxpayers and income tax return preparers use Form 8275, Disclosure Statement, and Form 8275-R, Regulation Disclosure Statement, to disclose items or positions taken on a tax return or that are contrary to Treasury regulations (to avoid parts of the accuracy-related penalty or certain preparer penalties).

Form 8300.   File Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if the organization received more than $10,000 in cash or foreign currency in one transaction or in a series of related transactions. For more information, see Form 8300 and Regulations section 1.6050I-1(c).

Form 8697.   Use Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, to figure the interest due or to be refunded under the look-back method of section 460(b)(2). The look-back method applies to certain long-term contracts that are accounted for under either the percentage method or the completion-capitalized cost method.

Form 8865,   Return of U.S. Person With Respect To Certain Foreign Partnerships. An organization may have to file Form 8865 if it:

  Also, the organization may have to file Form 8865 to report certain dispositions by a foreign partnership of property it previously contributed to that foreign partnership if it was a partner at the time of the disposition. For more details, including penalties that may apply, see Form 8865 and its separate instructions.

Form 8886.   Use Form 8886, Reportable Transaction Disclosure Statement, to disclose information for each reportable transaction in which the organization participated. Form 8886 must be filed for each tax year that the federal income tax liability of the organization is affected by its participation in the transaction. The organization may have to pay a penalty if it is required to file Form 8886 but does not do so. The following are reportable transactions.

Penalties.   The organization may have to pay a penalty if it is required to disclose a reportable transaction under section 6011 and fails to properly complete and file Form 8886. The penalty is $50,000 ($200,000 if the reportable transaction is a listed transaction) for each failure to file Form 8886 with its return or for failure to provide a copy of Form 8886 to the Office of Tax Shelter Analysis (OTSA). Other penalties, such as an accuracy-related penalty under section 6662A, may also apply. See the Instructions for Form 8886 for details.

Form 8873.   Use Form 8873, Extraterritorial Income Exclusion, to report the amount of extraterritorial income from line 54 that is excluded from the organization's gross income for the tax year.

Form 8899.   Use Form 8899, Notice of Income from Donated Intellectual Property, to report income from qualified intellectual property.

Form 8903.   Use Form 8903, Domestic Production Activities Deduction, to report this deduction. An organization may be able to deduct a portion of income from certain qualified productions.

Change in accounting method.   To change the method of accounting used to report taxable income (for income as a whole or for the treatment of any material item), the organization must file with the IRS either an (a) advanced consent request for a ruling or (b) automatic change request for certain specific changes in accounting method.

  In either case, the organization must file Form 3115, Application for Change in Accounting Method. For more information, see Form 3115 and Pub. 538, Accounting Periods and Methods.

  

Section 481(a) adjustment.   The organization may have to make an adjustment under section 481(a) to prevent amounts of income or expense from being duplicated or omitted. The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. However, an organization may elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. The organization must complete the appropriate lines of Form 3115 to make the election.

  Include any net positive section 481(a) adjustment on Form 990-T, page 1, line 12. If the net section 481(a) adjustment is negative, report it on Form 990-T,page 1, line 28.

Your organization may be required to file an annual information return on:

If so, include on that information return the unrelated business gross income and expenses (but not including the specific deduction claimed on line 33, page 1, or any expense carryovers from prior years) reported on Form 990-T for the same tax year.

The organization may round off cents to whole dollars on Form 990-T and its schedules. If the organization does round to whole dollars, it must round all amounts. To round, drop amounts under 50 cents and increase amount from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50
becomes $3.

If two or more amounts must be added to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.

If you need more space on the form or schedules, attach separate sheets. On the attachment, write the corresponding form or schedule number or letter and follow the same format. Show totals on the printed form. Also, include the organization's name and EIN. The separate sheets should be the same size as the printed form and should be attached after the printed form.

Under section 6104(d), a section 501(c)(3) organization that has gross income from an unrelated trade or business of $1,000 or more must make its annual exempt organization business income tax return (including amended returns) available for public inspection.

A section 501(c)(3) organization filing the Form 990-T only to request a credit for certain federal excise taxes paid does not have to make the Form 990-T available for public inspection.

A 501(c)(3) organization must make its annual returns available for public inspection without charge at its principal, regional, and district offices during regular business hours.

A 501(c)(3) organization must provide copies of its annual returns to any individual who makes a request for a copy in person or in writing unless it makes these documents widely available.

A 501(c)(3) organization does not have to provide copies of its annual returns if it makes these documents widely available. However, it must still allow public inspection by office visitation.

A penalty may be imposed on any person who does not make the annual returns (including all required attachments to each return) available for public inspection according to the section 6104(d) rules discussed above. If more than one person fails to comply, each person is jointly and severally liable for the full amount of the penalty. The penalty amount is $20 for each day during which a failure occurs. The maximum penalty that may be imposed on all persons for any one annual return is $10,000.

Any person who willfully fails to comply with the section 6104(d) public inspection requirements is subject to an additional penalty of $5,000 (section 6685).