Public Disclosure of Form 990-T

By Laura Kalick

As a result of the Pension Protection Act of 2006, 501(c)(3) organizations will now have to disclose to the public Form 990-T, the Unrelated Business Income Tax (UBIT) return. The penalties for not disclosing Forms 990-T are the same penalties that can be imposed if a Form 990 is not disclosed. Currently, this penalty is $20 per day and the maximum penalty that can be imposed for any one return is $10,000. Organizations will be able to keep from public review any information that is related to trade secrets, process, style of work, etc.

It is expected that watchdog groups and newspaper reporters will take the opportunity to scrutinize Forms 990-T. And, since the Form 990 is already available to the public for inspection, the two forms will probably be read in tandem. Therefore, organizations should take the following steps:

• Take an inventory of all sources of revenue. This includes rent, royalties, interest, advertising, sponsorships, sales of merchandise, income from affiliates, joint ventures, trade shows, certification programs, testing, Internet activities, etc.
• Determine if the revenue is from a trade or business that is regularly carried on and is not substantially related to the exempt purpose of the organization.
• Determine if any of the many exceptions, exclusions or modifications to UBIT apply to the activity, e.g., volunteer exception, donated goods exception, etc.
• Review all expense allocations. Expenses related to exempt activities cannot be used to offset unrelated business income. Also, any allocation of a dual-use item expense to an unrelated activity must be done on a reasonable basis.
• Make sure that unrelated business income is accurately reported. Remember that the Form 990-T requires that gross unrelated business income be reported.

Laura Kalick is a senior manager in the Nonprofit Tax practice in BDO Seidman’s Greater Washington, D.C. office. She can be reached at lkalick@bdo.com.

> Next Article - Supporting Organizations