What Is Form 990-T? Unrelated Business Income Tax

Form 990-T is the federal tax return that tax-exempt organizations file to report income from a trade or business unrelated to their exempt purpose. Any exempt entity with at least $1,000 in gross income from such an activity has to file one, and the list of filers is broader than most people expect: it includes charities, universities, pension trusts, and individual retirement accounts, including traditional and Roth IRAs.¹ The tax behind the form, the unrelated business income tax, exists to keep exempt organizations from undercutting taxable competitors when both are selling the same goods or services.

Who Has to File

The $1,000 gross-income threshold applies to a long list of exempt entities. If any of the following has $1,000 or more in gross income from a regularly conducted unrelated trade or business, it must file Form 990-T:

Organizations exempt under Section 501(a), including 501(c)(3) charities, social welfare organizations, and trade associations.
State colleges, universities, and their wholly owned subsidiaries.
Qualified tuition programs (529 plans) and ABLE programs (529A plans).
Employee benefit trusts described in Section 401(a), including pension and profit-sharing trusts.
Individual retirement accounts: traditional, SEP, SIMPLE, and Roth IRAs.
Coverdell education savings accounts, Archer MSAs, and health savings accounts.

Each of these accounts is treated as a separate trust for unrelated business taxable income purposes, even if the same person owns several of them. Every account that crosses the $1,000 threshold needs its own Employer Identification Number and its own return.²

Why IRA Holders Get Caught by This

Most IRA owners never think about Form 990-T because their accounts hold ordinary stocks, bonds, and mutual funds. The filing requirement surfaces when an IRA holds something that generates business income rather than passive investment returns. The most common trigger is owning units in a master limited partnership, which passes through operating income that counts as unrelated business taxable income. Self-directed IRAs that hold leveraged real estate are another frequent source, because income from debt-financed property is partially taxable even inside a retirement account.¹

If an IRA receives a Schedule K-1 showing unrelated business income, the custodian or trustee is responsible for filing the return. Many custodians pass that work to the account holder. Ignoring it leaves penalties that the IRA has to pay out of its own funds.

What Counts as Unrelated Business Income

An activity generates unrelated business taxable income only when it meets all three parts of a statutory test. The income has to come from a trade or business, that business has to be regularly carried on, and the activity cannot be substantially related to the organization’s exempt purpose.³ Miss one part and the income falls outside the rule no matter how commercial it looks.

The “regularly carried on” piece trips up organizations that run one-off events. A charity hosting a single weekend fundraiser with food sales is not regularly carrying on a food-service business. That same charity running a café open to the public five days a week, year-round, almost certainly is. The IRS compares the frequency and manner of the activity to how a taxable business in the same field operates.

The “not substantially related” test is where most disputes arise. An activity is substantially related only when the commercial work itself contributes meaningfully to the exempt purpose. The fact that an organization spends the profits on charitable programs is irrelevant. A hospital gift shop selling get-well cards to visitors may be related to patient care; a large public fitness center with no meaningful connection to the hospital’s medical mission is not. A university press publishing scholarly research relates to the educational mission; leasing its printing equipment to outside businesses for profit does not.

Sponsorships Versus Advertising

One area that catches nonprofits off guard is the line between a qualified sponsorship payment and taxable advertising income. A qualified sponsorship payment is money a business pays to an exempt organization with no expectation of receiving a substantial benefit beyond having its name or logo acknowledged. Displaying a corporate sponsor’s logo at a charity event or printing the company name in a program is an acknowledgment, not advertising, and the payment is excluded.⁴

The payment crosses into advertising when the acknowledgment promotes the sponsor’s products: comparative claims, pricing, endorsements, or calls to action. A newsletter that prints “Sponsored by Acme Corp” next to the company logo is fine. Adding “Acme Corp — 20% off your first order at acme.com” turns the same space into an advertisement, and the revenue becomes taxable. If a single message mixes acknowledgment and promotional content, the IRS treats the entire payment as advertising income.⁴

Income That Is Excluded

Even when an organization has to file, not all of its revenue ends up taxed. The Internal Revenue Code carves out several categories of passive income and certain activities regardless of how commercial they appear.

Passive Income

The following types of income are generally excluded:⁵

Dividends, interest, and annuities, regardless of amount.
Royalties for the use of patents, copyrights, trademarks, or mineral rights, whether measured by production, gross income, or net income from the property.
Rents from real property, as long as the rent is not calculated as a percentage of the tenant’s net profits. Rent from personal property leased alongside real property is also excluded when the personal property share is incidental.
Capital gains from selling investments like stocks and bonds. The exclusion does not cover inventory held primarily for sale to customers in the ordinary course of business.

These exclusions lose their protection when the underlying property is debt-financed.

Specific Activities

Some activities are exempt even when they otherwise meet the three-part test:

Operations where substantially all the work is done by unpaid volunteers. A thrift store staffed entirely by volunteers does not generate unrelated business taxable income.
Sales of donated goods, which covers most charity shops selling donated clothing and household items.
Activities conducted primarily for the convenience of an organization’s members, students, patients, or employees. A university dining hall or a hospital cafeteria falls into this category.
Qualified research performed by a college, university, or hospital, and research funded by the federal government or a state.

Debt-Financed Property

The passive-income exclusions do not apply when the property generating the income was bought with borrowed money. If an exempt organization takes a loan to buy rental property or an investment asset, a portion of the income is pulled back into unrelated business taxable income. The taxable share equals the ratio of the average outstanding debt to the property’s average adjusted basis.⁶

So if a charity buys a $1,000,000 building with a $600,000 mortgage, roughly 60% of the net rental income is taxable. As the mortgage is paid down, the taxable percentage falls. Certain filers get a pass: qualified retirement trusts under Section 401(a), educational institutions described in Section 170(b)(1)(A)(ii), and their supporting organizations can hold debt-financed real property without triggering the tax, subject to conditions in the statute.⁷

Self-directed IRAs do not get that pass. An IRA that borrows to invest in real estate will see a portion of rental income, and any gain on sale, treated as unrelated business taxable income inside the account.

How the Tax Is Calculated

The calculation starts with gross income from each unrelated activity. From that, the organization deducts the ordinary and necessary expenses directly connected with the activity, including wages, cost of goods sold, and depreciation on equipment used in the business. When facilities or staff serve both the exempt mission and the unrelated business, expenses have to be allocated between the two on a reasonable basis.²

After subtracting connected expenses, the organization applies a flat $1,000 specific deduction. In practice, if net income is $1,000 or less after expenses, no tax is owed. The return still has to be filed, though, if gross income hit the $1,000 threshold.⁵

Which Rate Applies

The rate depends on legal structure. Entities organized as corporations, which includes most 501(c)(3) charities, pay the flat 21% corporate income tax rate. Organizations structured as trusts, including pension trusts and IRAs, pay at the graduated trust income tax rates. Those rates are steeply progressive. For the 2026 tax year, the top rate of 37% applies to taxable income above just $16,000, so even modest amounts of unrelated business income inside an IRA can be taxed at high marginal rates.

Siloing Multiple Businesses

Organizations running more than one unrelated business cannot combine the results into a single net number. Since 2018, the code requires computing unrelated business taxable income separately for each trade or business, a rule known as siloing. A loss in one activity cannot offset income from another.⁸ The $1,000 specific deduction is applied only once, after the separate calculations are combined. Net operating losses stay siloed: a loss from one business carries forward only against future income from that same business.⁹

Loss Carryforward Limits

Two limits apply to those carryforwards. Carrybacks are no longer permitted for losses arising in tax years beginning after December 31, 2017. And losses carried forward can offset only 80% of the current year’s taxable income from that activity. The remaining 20% stays taxable regardless of accumulated losses.¹⁰

Deadlines, Extensions, and E-Filing

The deadline depends on the type of entity. Employee benefit trusts under Section 401(a), IRAs of every flavor, Coverdell ESAs, and Archer MSAs file by the 15th day of the 4th month after the end of their tax year, which is April 15 for calendar-year filers. All other organizations, including most charities and trade associations, file by the 15th day of the 5th month, making their deadline May 15.¹ If either date falls on a weekend or legal holiday, the deadline moves to the next business day.

An automatic six-month extension is available by filing Form 8868 before the original due date. The extension gives more time to file but not more time to pay. Any tax owed is still due on the original deadline to avoid interest and penalties.¹¹

Electronic filing is mandatory. The IRS has required e-filing for all exempt organizations submitting Form 990-T for tax years ending December 2020 and later. Paper is not an option for organizations and trusts subject to tax under Section 511.¹²

Quarterly Estimated Payments

Organizations that expect to owe $500 or more in unrelated business income tax for the year have to make quarterly estimated payments. The payments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year, which for a calendar-year filer means April 15, June 15, September 15, and December 15.¹³ Payments go through the Electronic Federal Tax Payment System. Missing them triggers a separate underpayment penalty on top of any other penalty that applies.¹⁴

Penalties

Filing late carries a penalty of 5% of the unpaid tax for each month or partial month the return is overdue, up to a maximum of 25%. If the return is more than 60 days late, the minimum penalty is the lesser of the tax due or $525.²

A separate penalty applies for late payment. If the return is filed on time but the tax is not paid in full by the due date, the penalty is 0.5% of the unpaid balance per month, capping at 25%. That rate doubles to 1% per month if the IRS issues a notice of intent to levy and the tax remains unpaid 10 days later.¹⁵

One boundary worth noting: failing to file Form 990-T does not by itself revoke tax-exempt status. Automatic revocation applies when an organization fails to file its annual information return (Form 990, 990-EZ, or 990-PF) for three consecutive years.¹⁶ A pattern of ignoring unrelated business income obligations can still draw scrutiny, and the financial penalties alone can erode funds the organization worked to earn.

Public Disclosure for 501(c)(3) Filers

Organizations described in Section 501(c)(3) have to make their Form 990-T available for public inspection. The requirement covers the return and the schedules related to the unrelated business income tax. Attachments unrelated to that tax do not have to be disclosed. The organization has to keep the return available for three years beginning on the last day prescribed for filing, including extensions.¹⁷ Other exempt organizations, including social clubs and trade associations, are not subject to this disclosure rule for Form 990-T.

1
Internal Revenue Service. Instructions for Form 990-T (2025)
2
Internal Revenue Service. 2025 Instructions for Form 990-T
3
Legal Information Institute (LII). 26 USC 513(a) – Unrelated Trade or Business Definition
4
Internal Revenue Service. Advertising or Qualified Sponsorship Payments?
5
Office of the Law Revision Counsel. 26 USC 512 – Unrelated Business Taxable Income
6
Internal Revenue Service. Unrelated Business Income From Debt-Financed Property Under IRC Section 514
7
Office of the Law Revision Counsel. 26 USC 514 – Unrelated Debt-Financed Income
8
Internal Revenue Service. FAQs – Carryback of NOLs by Certain Exempt Organizations
9
eCFR. 26 CFR 1.512(a)-6 – Special Rule for Organizations With More Than One Unrelated Trade or Business
10
Internal Revenue Service. Unrelated Business Taxable Income Computed Separately for Each Trade or Business – Siloing
11
Internal Revenue Service. Instructions for Form 8868 (Rev. January 2026)
12
Internal Revenue Service. E-File for Charities and Nonprofits
13
Internal Revenue Service. Estimated Tax: Unrelated Business Income
14
Internal Revenue Service. Publication 598 (03/2021), Tax on Unrelated Business Income of Exempt Organizations
15
Internal Revenue Service. Topic No. 653, IRS Notices and Bills, Penalties and Interest Charges
16
Internal Revenue Service. Automatic Revocation of Exemption
17
Internal Revenue Service. Public Inspection and Disclosure of Form 990-T