Form 990 Schedule R instructions apply only if you file the full Form 990 and answered “Yes” to at least one of the related-organization questions on Form 990, Part IV. The schedule has six parts covering disregarded entities, related organizations sorted by tax treatment, transactions between you and those entities, and certain unrelated partnerships you operate through. You complete only the parts your Part IV answers trigger, not the whole schedule by default. Filers of Form 990-EZ and Form 990-N do not use Schedule R at all.
Which Parts You Have To Complete
Your answers to five lines on Form 990, Part IV decide what you fill in:
- Line 33 (disregarded entities): Part I.
- Line 34 (related organizations): Parts II, III, and IV, plus Part V, line 1, as applicable.
- Line 35b (payments from or transactions with controlled entities): Part V, line 2.
- Line 36 (transfers to exempt non-charitable related organizations): Part V, line 2. This question is for 501(c)(3) organizations only.
- Line 37 (activity conducted through an unrelated partnership): Part VI.
Answer “No” to all five and you skip the schedule entirely. If you file the full Form 990 voluntarily when you were not required to, the schedules, including Schedule R, still apply.
What Counts as a Related Organization
Most of Schedule R depends on who is “related” to you, so work this out before you start filling in boxes. An entity is related if it fell into one of the defined categories at any time during the tax year. One day is enough.
Control-Based Relationships
Three structures matter: a parent that controls you, a subsidiary you control, and a brother/sister entity controlled by the same person or group that controls you.
For entities with owners, control means more than 50 percent of the voting stock or value of a corporation, more than 50 percent of the profits or capital interest in a partnership or LLC, or more than 50 percent of the beneficial interests in a trust. For a nonprofit, control means the power to appoint or remove a majority of its directors or trustees.
Indirect and Constructive Ownership
You cannot stop at direct ownership. The IRS requires you to apply the constructive ownership rules of IRC Section 318 for corporations, with similar principles for partnerships and trusts. Ownership held through a subsidiary is attributed up to the parent proportionally, so an 80 percent interest in a corporation that itself holds a 70 percent profits interest in a partnership makes you a 56 percent owner of the partnership, and both entities are related. Family attribution also applies: stock owned by a spouse, children, grandchildren, or parents can be attributed to an individual when testing control. Layered entities and family holdings are the arrangements these rules exist to catch.
Supporting Organizations and VEBAs
A Section 509(a)(3) supporting organization is a related entity regardless of any ownership percentage, because it exists solely by virtue of its relationship to one or more publicly supported organizations. The three types track how tight that connection is: Type I is operated, supervised, or controlled by the supported organization; Type II is supervised or controlled in connection with it; Type III is operated in connection with it.
For a Section 501(c)(9) voluntary employees’ beneficiary association, both the sponsoring organization that establishes or maintains the VEBA and any employer contributing to it during the tax year are related entities.
Part I: Disregarded Entities
Part I lists entities that are legally separate from your organization but ignored for federal tax purposes, typically a single-member LLC that has not elected corporate taxation. Their income, expenses, assets, and liabilities already flow onto your Form 990, but you still identify each one here so the IRS can see the full structure.
For each disregarded entity, report its full legal name, address, and EIN (if it has one), a brief description of its primary activity, its state or country of organization, the portion of your total revenue attributable to it, the portion of your end-of-year assets attributable to it, and the direct controlling entity (which may be your filing organization or another disregarded entity above it in the chain).
The income and asset figures are not new numbers. They are carved out of what you already reported on Form 990, so the IRS can see how much of your activity runs through each disregarded entity.
Parts II, III, and IV: Related Organizations by Tax Treatment
These three parts collect identifying information for related organizations, sorted by how each entity is taxed. The sort matters because the IRS cross-checks what you report against each related entity’s own filings.
Part II: Related Tax-Exempt Organizations
Part II is for related organizations that are themselves tax-exempt. For each one, give its name, address, EIN, primary activity, legal domicile, the Code section under which it claims exemption (such as 501(c)(3) or 501(c)(6)), and, for a 501(c)(3), its public charity status. Identify the direct controlling entity and indicate whether the entity is a controlled entity under IRC Section 512(b)(13). That last column flags situations where interest, rent, royalties, or annuities paid by the controlled entity to you may become unrelated business taxable income.
Part III: Related Organizations Taxable as Partnerships
Part III covers related organizations treated as partnerships for federal tax purposes. Beyond the identifying information, you report the type of entity (general partner, limited partner, or LLC member), the related entity’s share of aggregate income and end-of-year assets, the direct controlling entity, and the relationship type. Report your organization’s share of the partnership’s profits and capital, and any disproportionate allocations.
Part IV: Related Organizations Taxable as Corporations or Trusts
Part IV handles related entities that are taxable corporations or trusts. Report the identifying data along with the type of entity, the related organization’s total income, end-of-year assets, the direct controlling entity, and your organization’s share of income and ownership percentage.
Part V: Transactions With Related Organizations
Part V is where the IRS looks for private benefit and misused exempt resources. You disclose specific financial transactions between your organization and any entity listed in Parts II, III, or IV. Disregarded entities from Part I are excluded because their activity is already consolidated into your Form 990.
Line 1 lists 19 transaction categories; you check “Yes” or “No” for each. For every “Yes,” line 2 asks for the related organization’s name, the transaction type, the amount involved, and the method used to determine that amount. The categories include:
- Interest, annuities, royalties, or rent received from a controlled entity.
- Grants, gifts, or capital contributions in either direction.
- Loans and loan guarantees to or from related organizations.
- Sales, purchases, or exchanges of assets.
- Leases of facilities, equipment, or other assets, in either direction.
- Performance of services, membership solicitations, or fundraising for or by a related entity.
- Shared facilities, equipment, mailing lists, other assets, or paid employees.
- Expense reimbursements paid or received.
- Any other transfer of cash or property, including a merger with a related entity.
The “method of determining amount involved” column is the one that invites follow-up. Shared services, below-market leases, and allocated overhead between related entities need a reasonable, consistently applied valuation that reflects what independent parties would have agreed to. Free office space provided to a related for-profit, for example, is a reportable transaction, and you have to say how you arrived at the value.
Part VI: Unrelated Partnerships
Part VI covers partnerships that are not related organizations but through which you conduct a meaningful share of your activities. Report an unrelated partnership if all three of these are true:
- The partnership is not a related organization.
- You were a partner or member at any time during the tax year.
- You conducted more than 5 percent of your activities through it, measured by the greater of total assets or total revenue.
The 5 percent test compares your capital account balance in the partnership (for the asset side) or your distributive share of its gross revenue (for the revenue side) against your organization’s total assets or total revenue on Form 990.
A passive-investment exception lets you disregard an unrelated partnership if 95 percent or more of your revenue from it is investment income (interest, dividends, royalties, rents, and capital gains) and your primary purpose for investing is income or appreciation rather than carrying out a charitable activity.
Penalties for an Incomplete or Late Schedule
Schedule R is part of your Form 990, so an incomplete Schedule R makes the whole return incomplete. Under IRC Section 6652(c)(1)(A), filing late or incomplete carries a $20-per-day penalty, capped at the lesser of $10,000 or 5 percent of gross receipts. Organizations with gross receipts over $1,000,000 face $100 per day, capped at $50,000.
These penalties apply to on-time returns that are missing required information as well as to late returns, and they accrue until the missing information is provided. Omitting a related organization you should have listed can trigger the incomplete-return penalty by itself. If you receive a notice, you can request abatement by showing reasonable cause, which the IRS evaluates case by case based on the specific facts.
Where Filers Most Often Get It Wrong
The most common error is missing a related entity. Layered subsidiaries, shared board majorities across multiple nonprofits, and partnership chains with constructive ownership all produce relationships that are easy to overlook. Map every connected entity before you start, apply both direct and constructive ownership tests, and remember that an entity related for part of the year still gets reported.
Putting the right entity in the wrong part is the next pitfall. A related LLC taxed as a partnership belongs in Part III, not Part II. A single-member LLC that is disregarded belongs in Part I. The wrong classification cascades into the wrong data fields and tends to generate IRS correspondence.
On Part V, filers routinely underreport shared services and below-market arrangements. If a related entity uses your space, equipment, or staff without paying full value, that is a reportable transaction, and reporting it without a defensible valuation method invites the same scrutiny as not reporting it at all. The IRS is specifically watching for exempt resources subsidizing non-exempt entities and for transactions that do not look arm’s-length.