If an organization earns revenue that is unrelated to its nonprofit missions, the government imposes taxes on that revenue. This revenue is known as unrelated business enterprise revenue. If Congress didn’t levy this tax, commercial corporations will be at an enormous competitive disadvantage with nonprofit organizations since the nonprofits would get to compete tax-free. To take away the competitive disadvantage, the government says that if an organization has adequate unrelated trade or business enterprise revenue, the organization could shed its tax-exempt status altogether.
So, if a nonprofit has unrelated business enterprise revenue of $1,000 or extra, it is expected to file IRS Form 990-T. This form is moreover for the Form 990, 990- EZ, or 990-PF. The filing date for the form varies based on the kind of organization.
In order for revenue to become deemed unrelated, which can be a classification that
would call for a Form 990-T, the following 3 components has to be present:
In order for revenue to become deemed unrelated, which can be a classification that
would call for a Form 990-T, the following 3 components has to be present:
- The nonprofit organization conducts a trade or business
- The trade or business isn’t substantially related to the nonprofit purpose of the organization
- The trade or business is regularly carried on by the nonprofit organization (in other words, the IRS won’t come down too hard on the isolated sale of a plate of cookies or the sale of an old church organ)
