Form 990T – What You Need To Know
Form 990T: A Quick & Easy Breakdown
If you hold assets in a self-directed IRA or HSA account and you haven’t done so already, you’ll soon be grappling with a Form 990T (Form 990-T) for this tax season. A 990T is the form IRA holders must use to report their retirement account assets.
What’s It For?
Tax payers use the Form 990T for the following purposes:
- To report unrelated business income,
- To figure and report unrelated business income tax liability,
- To report proxy tax liability,
- To claim a refund of income tax paid by a regulated investment company (RIC) or a real estate investment trust (REIT), on undistributed long-term capital gain,
- To request a credit for certain federal excise taxes paid or for small employer health insurance premiums paid, and
- To report unrelated business income tax on reinsurance entities.
Who Has to Use It?
Your IRA administrator is included in the persons and entities who must file a 990T: “Trustees [custodians] for the following trusts that have $1,000 or more of unrelated trade or business gross income” must file 990Ts.
Which Account Types Need to File a 990T?
- Individual retirement accounts (IRAs), including Traditional IRAs
- Simplified employee pension IRAs (SEP IRAs)
- Savings incentive match plan for employees of small employers IRAs (SIMPLE IRAs)
- Roth IRAs
- Coverdell education savings accounts (ESAs)
- Archer medical savings accounts (Archer MSAs)
- Health savings accounts (HSAs)
Do I Have to File for Every Account I Own?
The IRS notes that, “Each account of a type listed above is treated as a separate trust for unrelated business income tax purposes (even if there is a single owner or beneficiary for multiple accounts). A custodian is treated as a trustee. Individual retirement annuities, unlike individual retirement accounts, are not subject to unrelated business income tax.”
What Do You File For?
For most organizations, a business activity generates unrelated business income subject to taxation if:
1.) It is a trade or business,
2.) it is regularly carried on, and
3.) it is not substantially related to furthering the exempt purpose of the organization.
What Constitutes a Trade or Business?
According to the IRS, “A trade or business is any activity conducted for the production of income from selling goods or performing services. An activity must be conducted with intent to profit to constitute a trade or business.” An activity is substantially related to furthering the exempt purpose of the organization if the activity contributes importantly to accomplishing the organization’s purpose, other than for the sake of producing the income itself.
What Constitutes Unrelated Trade or Business Income?
According to the IRS, “Unrelated trade or business income is the gross income derived from any trade or business regularly carried on and not substantially related to the organization’s exempt purpose or function.”
An activity is “regularly carried on” if it occurs with a frequency and continuity, similarly to what a regular business would do if performed the same activity. If the trade or business is a non-profit, any income that is not solely dedicated to the non-profit’s purpose is subject to Unrelated Trade or Business Income tax.
What Are the Exclusions?
Certain types of income are not considered unrelated business income, such as income from dividends; interest; royalties; rental of real property; research for a federal, state, or local government; and charitable contributions, gifts, and grants (Cornell Law School).
Unrelated business income does not include income derived from the work of unpaid volunteers, income from the sale of donated goods, income from trade shows and conventions, income from legal gaming. The Internal Revenue Service does not consider the receipt of assets from a closely related tax-exempt organization to be unrelated business income.
When Do I Have to File By?
An employees’ trust defined in section 401(a), an IRA (including SEPs and SIMPLEs), a Roth IRA, a Coverdell ESA, or an Archer MSA must file Form 990T by April 15th of every tax year. All other organizations must file Form 990T by the 15th day of the 5th month after the end of their tax years. If the regular due date falls on a Saturday, Sunday, or legal holiday, file no later than the next business day.
“Corporations may request an automatic 6-month extension of time to file Form 990T 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 IR” (IRS.gov).
Where to File:
To file Form 990T, mail or deliver it to:
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0027
For tax years beginning after 2014, the following changes apply for IRA account holders:
Qualified specified payments. The exclusion from unrelated business taxable income for qualified specified payments under section 512(b)(13)(E)(iv) has been extended and shall apply to payments received or accrued after December 31, 2014 (IRS.gov).