us internal revenue service: i990t--1994

8/14/2019 US Internal Revenue Service: i990t--1994

http://slidepdf.com/reader/full/us-internal-revenue-service-i990t-1994 1/15

Cat. No. 11292U

Paperwork ReductionAct NoticeWe ask for the information on this form tocarry out the Internal Revenue laws of theUnited States. You are required to give usthis information. We need it to ensure thatyou are complying with these laws and toallow us to figure and collect the rightamount of tax.

The time needed to complete and filethis form will vary depending on individualcircumstances. The estimated average timeis:

Recordkeeping 65 hr., 3 min.

Learning about thelaw or the form 22 hr., 26 min.

Preparing the form 37 hr., 31 min.

Copying, assembling,and sending the formto the IRS 3 hr., 45 min.

If you have comments concerning theaccuracy of these time estimates orsuggestions for making this form simpler,we would be happy to hear from you. Youcan write to both the Internal RevenueService, Attention: Tax Forms Committee,PC:FP, Washington, DC 20224; and theOffice of Management and Budget,Paperwork Reduction Project (1545-0687),Washington, DC 20503. DO NOT send the

tax form to either of these offices. Instead,see Where To File on page 2.

General Instructions

Changes To Note● Final regulations under section 263Ahave been adopted. These regulations,which require the capitalization andinclusion in inventory of certain costs,generally are effective for tax yearsbeginning after 1993, and supersede, inmost cases, Temporary Regulationssection 1.263A-1T. Changes in accountingmethods may be necessary as a result of

the issuance of the final regulations. Thesechanges must be made under Rev. Proc.94-49, 1994-30 I.R.B. 31. The principles ofTemporary Regulations section1.263A-1T(e) must be applied in revaluinginventories under the revenue procedure.

The Revenue Reconciliation Act of 1993(the Act) made changes to the tax law,some of which are highlighted below.

● Generally, lobbying expenses paid orincurred after December 31, 1993, are nolonger deductible. These expenses includeamounts paid or incurred in connectionwith influencing Federal or state legislation

(but not local legislation), or amounts paidor incurred in connection with anycommunication with certain Federalexecutive branch officials in an attempt toinfluence the official actions or positions ofthe officials. However, certain in-houseexpenditures that do not exceed $2,000are still deductible. Charitable contributionsmade after December 31, 1993, to anorganization that conducts lobbyingactivities are not deductible if the lobbyingactivities relate to matters of directfinancial interest to the donor’s trade orbusiness and a principal purpose of thecontribution was to avoid Federal incometax by obtaining a deduction for activitiesthat would have been nondeductible under

the lobbying expense rules if conducteddirectly by the donor.

● The deductible portion of business mealsand entertainment expenses has beenreduced from 80% to 50%. For details,see the instructions for limits ondeductions on page 6.

● Generally, no deduction is allowed forany charitable contribution of $250 or moremade after 1993, unless the organizationobtains a written acknowledgement fromthe charitable organization. See page 8 formore details.

Purpose of Form

In general, Form 990-T, ExemptOrganization Business Income Tax Return,is used by tax-exempt organizations andby certain individual retirementarrangements (IRAs) to report theirunrelated business income and to figuretheir income tax and proxy tax liability. Inaddition, the form is used by IRAs andother tax-exempt shareholders of aregulated investment company (RIC) toobtain a refund of income tax paid undersection 852(b).

Contents Page

Who Must File 1

Definitions 2

When To File 2Where To File 2

Interest and Penalties 3

Which Parts of Form 990-TTo Complete 3

Consolidated Returns 3

Other Forms You May Need To File 3

Reporting Form 990-T Information onOther Returns 4

Rounding Off to Whole-DollarAmounts 4

Contents Page

Attachments 4

Specific Instructions 4

Part l—Unrelated Trade or BusinessIncome 5

Part ll—Deductions Not TakenElsewhere 6

Part Ill—Tax Computation 8

Part IV—Tax and Payments 9

Part V—Statements RegardingCertain Activities and

Other Information 11Signature 11

Schedule A—Cost of Goods Sold 11

Schedule C—Rent Income 12

Schedule E—Unrelated Debt-Financed Income 12

Schedule F—lnterest, Annuities,Royalties and Rents FromControlled Organizations 13

Schedule G—lnvestment Income ofa Section 501(c)(7), (9), or (17)Organization 13

Schedule I—Exploited ExemptActivity Income, Other Than

Advertising Income 14Schedule J—Advertising Income 14

Schedule K—Compensation ofOfficers, Directors, and Trustees 14

Codes for Unrelated BusinessActivity 15

Who Must FileAny domestic or foreign organizationexempt under section 501(a) must fileForm 990-T if it has gross income from anunrelated trade or business of $1,000 ormore. See Regulations section 1.6012-2(e).Gross income is gross receipts minus thecost of goods sold. (See Regulations

section 1.61-3.)Organizations liable for the proxy tax on

lobbying and political expenditures mustfile Form 990-T. See the line 37instructions for a discussion of the proxytax. If your organization is only required tofile Form 990-T because of the proxy tax,see Which Parts of Form 990-T ToComplete on page 3.

Colleges and universities of states andother governmental units, as well assubsidiary corporations wholly owned bysuch colleges and universities, are alsosubject to the Form 990-T filingrequirements. However, a section 501(c)(1)corporation that is an instrumentality of the

United States and both organized andexempted from tax by an Act of Congressdoes not have to file.

Fiduciaries for IRAs described in section408(a) that have $1,000 or more ofunrelated trade or business gross incomemust file Forms 990-T.

IRAs and other tax-exempt shareholdersin a regulated investment company (RIC)filing Form 990-T only to obtain a refund ofincome tax paid on undistributed long-termcapital gains should complete Form 990-Tas explained in Which Parts of Form

Instructions for Form 990-TExempt Organization Business Income Tax ReturnSection references are to the Internal Revenue Code unless otherwise noted.

Department of the TreasuryInternal Revenue Service



990-T To Complete, items 1 and 3, onpage 3.

DefinitionsUnrelated Trade or Business Income.—Unrelated trade or business (definedbelow) income is the gross income derived(a) from any trade or business that isregularly carried on, and not substantiallyrelated to (defined below), theorganization’s exempt purpose or function(aside from the organization’s need forincome or funds or the use it makes of theprofits); or (b) generally, for section501(c)(7), (9), or (17) organizations, fromnonmembers with certain modifications(see section 512(a)(3)(A)), or (c) for asection 511(a)(2)(B) state college oruniversity, from activities not substantiallyrelated to exercising or performing anypurpose or function described in section501(c)(3).

An unrelated trade or business does notinclude a trade or business:

1. In which substantially all the work isperformed for the organization withoutcompensation; or

2. That is carried on by a section

501(c)(3) or 511(a)(2)(B) organization mainlyfor the convenience of its members,students, patients, officers, or employees;or

3. That sells items of work-relatedequipment and clothes, and items normallysold through vending machines, fooddispensing facilities or by snack bars, by alocal association of employees describedin section 501(c)(4), organized before May27, 1969, if the sales are for theconvenience of its members at their usualplace of employment; or

4. That sells merchandise substantiallyall of which was received by theorganization as gifts or contributions; or

5. That consists of qualified publicentertainment activities regularly carried onby a section 501(c)(3), (4), or (5)organization as one of its substantialexempt purposes (see section 513(d)(2) forthe meaning of qualified publicentertainment activities); or

6. That consists of qualified conventionor trade show activities regularlyconducted by a section 501(c)(3), (4), (5),or (6) organization as one of its substantialexempt purposes (see section 513(d)(3) forthe meaning of qualified convention andtrade show activities); or

7. That furnishes one or more servicesdescribed in section 501(e)(1)(A) by a

hospital to one or more hospitals subjectto conditions in section 513(e); or

8. That consists of qualified pole rentals(as defined in section 501(c)(12)(D)), by amutual or cooperative telephone or electriccompany; or

9. That includes activities relating to thedistribution of low-cost articles, eachcosting $6.40 or less by an organizationdescribed in section 501 and contributionsto which are deductible under section170(c)(2) or (3) if the distribution is

incidental to the solicitation of charitablecontributions; or

10. That includes the exchange or rentalof donor or membership lists betweenorganizations described in section 501 andcontributions to which are deductibleunder section 170(c)(2) or (3); or

11. That consists of bingo games asdefined in section 513(f). Generally, a bingogame is not included in any unrelatedtrade or business if:

a. Wagers are placed, winners

determined, and prizes distributed in thepresence of all persons wagering in thatgame, and

b. The game does not compete withbingo games conducted by for-profitbusinesses in the same jurisdiction, and

c. The game does not violate state orlocal law; or

12. That consists of conducting anygame of chance by a nonprofitorganization in the state of North Dakota,and the conducting of the game does notviolate any state or local law.

A trade or business is any activitycarried on for the production of incomefrom selling goods or performing services.

An activity does not lose its identity as atrade or business merely because it iscarried on within a larger group of similaractivities which may or may not be relatedto the exempt purpose of the organization.If, however, an activity carried on for profitis an unrelated trade or business, no partof it can be excluded from thisclassification merely because it does notresult in profit.

Not substantially related to means thatthe activity that produces the income doesnot contribute importantly to the exemptpurposes of the organization, other thanthe need for funds, etc. Whether an activitycontributes importantly depends in each

case on the facts involved.For details, get Pub. 598, Tax on

Unrelated Business Income of ExemptOrganizations.

Directly Connected Expenses.—To bedeductible in computing unrelatedbusiness taxable income, expenses,depreciation, and similar items must qualifyas deductions allowed by section 162,167, or other relevant provisions of theCode, and must be directly connectedwith the carrying on of an unrelated tradeor business activity.

To be directly connected with thecarrying on of a trade or business activity,expenses, depreciation, and similar items

must bear a proximate and primaryrelationship to the conduct of the activity.For example, where facilities and/orpersonnel are used both to carry onexempt activities and to conduct unrelatedtrade or business activities, expenses andsimilar items attributable to such facilitiesand/or personnel must be allocatedbetween the two uses on a reasonablebasis. The portion of any such itemallocated to the unrelated trade orbusiness activity must bear a proximateand primary relationship to that businessactivity.

When To FileGenerally, the organization must file Form990-T by the 15th day of the 5th monthafter the end of the tax year. However, anemployees’ trust defined in section 401(a)and an IRA must file Form 990-T by the15th day of the 4th month after the end ofthe tax year. If the regular due date falls ona Saturday, Sunday, or legal holiday, fileon the next business day. If the return isfiled late, see the discussion of interestand penalties on page 3.

Extension.—Corporations may request anautomatic 6-month extension of time to fileForm 990-T by using Form 7004,Application for Automatic Extension ofTime To File Corporation Income TaxReturn.

Trusts may request an extension of timeto file by using Form 2758, Application forExtension of Time To File Certain Excise,Income, Information, and Other Returns.Trusts are not granted an automaticextension of time to file Form 990-T.

Amended Return.—To correct errors orchange a previously filed return, write“Amended Return” at the top of the return.Generally, the amended return must be

filed within 3 years after the date theoriginal return was due or 3 years after thedate the organization filed it, whichever islater.

Where To FileIf the principal

office of theorganizationis located in

Use the followingInternal RevenueService Center

address

Alabama, Arkansas, Florida,Georgia, Louisiana,Mississippi, North Carolina,South Carolina, Tennessee

Atlanta, GA 39901

Arizona, Colorado, Kansas,

New Mexico, Oklahoma,Texas, Utah, Wyoming

Austin, TX 73301

Indiana, Kentucky,Michigan, Ohio, WestVirginia

Cincinnati, OH 45999

Connecticut, Maine,Massachusetts, NewHampshire, New York,Rhode Island, Vermont

Holtsville, NY 00501

Illinois, Iowa, Minnesota,Missouri, Montana,Nebraska, North Dakota,South Dakota, Wisconsin

Kansas City, MO 64999

Alaska, California, Hawaii,Idaho, Nevada, Oregon,Washington

Fresno, CA 93888

Delaware, District ofColumbia, Maryland, NewJersey, Pennsylvania,Virginia, any U.S.possession or foreigncountry

Philadelphia, PA 19255

Estimated Taxes.—Generally, anorganization filing Form 990-T must makeinstallment payments of estimated tax if itsestimated tax (tax minus allowable credits)is expected to be $500 or more. Bothcorporate and trust organizations useForm 990-W, Estimated Tax on Unrelated



Business Taxable Income for Tax-ExemptOrganizations, to figure their estimated taxliability. Do not include the proxy tax whencomputing your estimated tax liability for1995.

To compute estimated tax, t rusts andcorporations must take the alternativeminimum tax into account. See Form990-W for more information.

Generally, taxpayers whose totaldeposits of withheld income, socialsecurity, and Medicare taxes duringcalendar year 1993 exceeded $78 millionare required to deposit all depository taxesdue after 1994 by electronic funds transfer(EFT). TAXLINK, an electronic remittanceprocessing system, must be used to makedeposits by EFT. Taxpayers who are notrequired to make deposits by EFT mayvoluntarily participate in TAXLINK. Formore details on TAXLINK, see Rev. Proc.94-48, 1994-29 I.R.B. 31. You may alsocall the toll-free TAXLINK HELPLINE at1-800-829-5469.

Interest and Penalties

Your organization may be subject tointerest and penalty charges if it files a latereturn or fails to pay tax when due.

Generally, the organization is not requiredto include the interest and penalty chargeson Form 990-T because the IRS can figurethe amount and bill the organization for it.

Interest.—Interest is charged on taxes notpaid by the due date even if an extensionof time to file is granted. Interest is alsocharged on penalties imposed for failure tofile, negligence, fraud, gross valuationoverstatements, and substantialunderstatements of tax from the due date(including extensions) to the date ofpayment. The interest charge is figured atthe underpayment rate determined undersection 6621(a)(2).

Late Filing of Return.—An organization

that fails to file its return when due(including extensions of time for filing) issubject to a penalty of 5% of the unpaidtax for each month or part of a month thereturn is late, up to a maximum of 25% ofthe unpaid tax unless it can showreasonable cause for the delay. Thosefiling late (after the due date, includingextensions) must attach an explanation tothe return. The minimum penalty for areturn that is more than 60 days late is thesmaller of the tax due or $100.

Late Payment of Tax.—The penalty forlate payment of taxes is usually 1 ⁄ 2 of 1%of the unpaid tax for each month or part ofa month the tax is unpaid. The penalty

cannot exceed 25% of the amount due.This penalty may also apply to anyadditional tax not paid within 10 days ofthe date of the notice and demand forpayment.

Estimated Tax Penalty.—An organizationthat fails to make estimated tax paymentswhen due may be subject to anunderpayment penalty for the period ofunderpayment. Generally, an organizationis subject to this penalty if its tax liability is$500 or more and it did not makeestimated tax payments of at least thesmaller of the tax shown on the return, or

100% of the prior year’s tax. See section6655 for details and exceptions.

Form 2220, Underpayment of EstimatedTax by Corporations, is used bycorporations and trusts filing Form 990-Tto see if the organization owes a penaltyand to figure the amount of the penalty.Generally, the organization is not requiredto file this form because the IRS can figurethe amount of any penalty and bill theorganization for it. However, you mustcomplete and attach Form 2220 even if theorganization does not owe the penalty if

any of the following apply:● The annualized income or adjustedseasonal installment method is used.

● The organization is a “large organization”computing its first required installmentbased on the prior year’s tax.

If you attach Form 2220, be sure tocheck the box on line 46, page 2, Form990-T, and enter the amount of anypenalty on this line.

Other Penalties.—There are also penaltiesthat can be imposed for negligence,substantial understatement of tax, andfraud. See sections 6662 and 6663.

Which Parts of Form 990-T To Complete

1. All filers must complete the applicableitems in the heading area at the top ofpage 1 and the signature area on page 2.

2. Filers other than those identified initems 3 and 4 below complete the rest ofForm 990-T as follows.

Complete Part I, column (A), lines 1through 13, on page 1. If the amount online 13, column (A), is $10,000 or less, youmay complete only line 13 of columns (B)and (C), lines 29 through 34 of Part II, andParts III through V. Filers with $10,000 orless on line 13, column (A), do not have tocomplete Schedules A through K (however,refer to applicable schedules when

completing column (A) and in determiningthe deductible expenses to include on line13 of column (B)). If the amount on line 13,column (A), Part I, is more than $10,000,complete all lines and schedules thatapply.

3. IRAs and other tax exemptshareholders in a regulated investmentcompany (RIC) filing Form 990-T only toobtain a refund of income tax paid onundistributed long-term capital gainsshould:

a. At the top of the return, write “Claimfor Refund shown on Form 2439,”

b. Complete the heading (using thename and employer identification number

(EIN) of the exempt organization),c. Enter the credit on line 44e,

d. Sign the return, and

e. Attach Form 2439, Notice toShareholder of Undistributed Long-TermCapital Gains.

If you are a trustee of more than one IRAinvested in a RIC, you may be able to file acomposite Form 990-T to claim a refund oftax under section 852(b) instead of filing aseparate Form 990-T for each IRA. Enterthe amount of the credit on line 44e. At thetop of the form, write “Composite Return

per Notice 90-18.” For specificrequirements and other information, seeNotice 90-18, 1990-1 C.B. 327.

4. Organizations liable for the proxy taxon lobbying and political expenditures thatare required to file Form 990-T onlybecause of the proxy tax should enter theproxy tax on line 37. Attach a scheduleshowing the computation. Then, completePart IV.

Consolidated Returns

The consolidated return provisions of

section 1501 do not apply to exemptorganizations, except for organizationshaving title holding companies. If a titleholding corporation described in section501(c)(2) pays any amount of its netincome for a tax year to an organizationexempt from tax under section 501(a) (orwould except that the expenses ofcollecting its income exceeded thatincome), and the corporation andorganization file a consolidated return asdescribed below, then treat the titleholding corporation as being organized andoperated for the same purposes as theother exempt organization (in addition tothe purposes described in section

501(c)(2)).Two organizations exempt from taxunder section 501(a), one a title holdingcompany, and the other earning incomefrom the first, will be includiblecorporations for purposes of section1504(a). If the organizations meet thedefinition of an affiliated group, and theother relevant provisions of Chapter 6 ofthe Code, then these organizations may filea consolidated return. The parentorganization must attach Form 851,Affiliations Schedule, to the consolidatedreturn. For the first year a consolidatedreturn is filed, the title holding companymust attach Form 1122, Authorization andConsent of Subsidiary Corporation To BeIncluded in a Consolidated Income TaxReturn. See Regulations section1.1502-100 for more information onconsolidated returns.

Other Forms You May Need ToFile

Form 720.—Use Form 720, QuarterlyFederal Excise Tax Return, to reportenvironmental excise taxes,communications and air transportationtaxes, fuel taxes, luxury tax on passengervehicles, manufacturers taxes, shippassenger tax, and certain other excisetaxes.

Caution: The trust fund recovery penalty may apply if certain excise taxes that must be collected are not collected or are not paid to the IRS. The penalty is equal to the unpaid trust fund tax. The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. See the instructions for Form 720 for more details,including the definition of responsible person.



Information Returns.—Organizationsengaged in an unrelated trade or businessmay be required to file an informationreturn on Forms 1099-A, B, DIV, INT,MISC, OID, R, S, 1096, W-2, and W-3 toreport abandonments, acquisitions throughforeclosures, proceeds from broker andbarter exchange transactions, dividends,interest, medical and health carepayments, miscellaneous incomepayments, nonemployee compensation,original issue discount, any distributionsfrom profit-sharing, retirement plans,

individual retirement arrangements,insurance contracts, proceeds from realestate transactions, and wages, tips, andother compensation.

Form 1098.—File Form 1098, MortgageInterest Statement, if the organization inthe course of its trade or business receivedfrom any individual $600 or more ofmortgage interest during any calendaryear.

Form 5498.—Use Form 5498, IndividualRetirement Arrangement Information, toreport contributions (including rollovercontributions) to an IRA and the value ofan IRA or simplified employee pensionaccount.

Form 5713.—File Form 5713, InternationalBoycott Report, if the organization hadoperations in or related to “boycotting”countries.

Form 6198.—File Form 6198, At-RiskLimitations, if the organization has a lossfrom an at-risk activity carried on as atrade or business or for the production ofincome.

Form 8275.—Taxpayers and income taxreturn preparers should attach Form 8275,Disclosure Statement, to Form 990-T todisclose items or positions (except thosecontrary to a regulation—see Form 8275-Rbelow) that are not otherwise adequatelydisclosed on the tax return. The disclosure

is made to avoid parts of theaccuracy-related penalty imposed fordisregard of rules or substantialunderstatement of tax. Form 8275 is alsoused for disclosures relating to preparerpenalties for understatements due tounrealistic positions or for willful orreckless conduct .

Form 8275-R.—Use Form 8275-R,Regulation Disclosure Statement, todisclose any item on a tax return for whicha position has been taken that is contraryto Treasury regulations.

Form 8300.—File Form 8300, Report ofCash Payments Over $10,000 Received ina Trade or Business, if the organization

received more than $10,000 in cash orforeign currency in one transaction or in aseries of related transactions.

Cashier’s checks, bank drafts, andmoney orders with face amounts of$10,000 or less are considered cash undercertain circumstances. For moreinformation, see Form 8300 andRegulations section 1.6050I-1(c).

Form 8697.—Use Form 8697, InterestComputation Under the Look-Back Methodfor Completed Long-Term Contracts, tofigure the interest due or to be refunded

under the look-back method of section460(b)(2) on certain long-term contractsthat are accounted for under either thepercentage of completion-capitalized costmethod or the percentage of completionmethod.

Form 8842.—For figuring estimated taxpayments under the annualized incomeinstallment method, file Form 8842,Election To Use Different AnnualizationPeriods for Corporate Estimated Tax, foreach year the organization wants to electone of the annualization periods in section

6655(e)(2)(C).Note: Form 8842 is used by tax-exempt trusts as well as corporations.

Accounting Methods

Taxable income must be computed usingthe method of accounting regularly used inkeeping the organization’s books andrecords. In all cases, the method adoptedmust clearly reflect taxable income. Seesection 446.

Unless the law specifically permitsotherwise, the organization may changethe method of accounting used to reportincome in earlier years (for income as awhole or for any material item) only by first

getting consent on Form 3115, Applicationfor Change in Accounting Method. Also getPub. 538, Accounting Periods andMethods.

Generally, organizations are required touse the accrual method of accounting fortheir unrelated trade or business activitiesif their average annual gross receipts aremore than $5 million. See section 448(c).An organization changing to the accrualmethod because of this provision mustcomplete Form 3115 and attach it to Form990-T for the year of change. Anorganization must also show on astatement accompanying Form 3115 theperiod over which the section 481(a)

adjustment will be taken into account andthe basis for that conclusion. See section448 and Regulations sections 1.448-1(g)and 1.448-1(h) for more information.Include the amount reportable as incomein 1994 under section 481(a) on line 12,page 1.

See section 460 for general rules onlong-term contracts.

Accounting Period

The return must be filed using theorganization’s established annualaccounting period. If the organization hasno established accounting period, file thereturn on the calendar-year basis.

To change an accounting period, someorganizations may make a notation on atimely filed Form 990, 990-EZ, 990-PF, or990-T. Others may be required to file Form1128, Application To Adopt, Change, orRetain a Tax Year. For details on whichprocedure applies to your organization, seeRev. Proc. 85-58, 1985-2 C.B. 740, andthe instructions for Form 1128.

If the organization changes itsaccounting period, file Form 990-T for theshort period that begins with the first dayafter the end of the old tax year and ends

on the day before the first day of the newtax year. For the short period return, figurethe tax by placing the organization’staxable income on an annual basis. Fordetails, see Pub. 538 and section 443.

Reporting Form 990-T Information onOther Returns

Organizations required to file an annualinformation return on Form 990, Return ofOrganization Exempt From Income Tax,Form 990-EZ, Short Form Return ofOrganization Exempt From Income Tax,

Form 990-PF, Return of PrivateFoundation or Section 4947(a)(1)Nonexempt Charitable Trust Treated as aPrivate Foundation, or any of the Form5500 series returns (except certain Forms5500-C/R and Form 5500-EZ) must includeon that information return the unrelatedbusiness gross income and expenses (butnot including the specific deductionclaimed on line 33, page 1, or any expensecarryovers from prior years) reported onForm 990-T for the same tax year.

Rounding Off to Whole-Dollar Amounts

The organization may show the moneyitems on the return and accompanyingschedules as whole-dollar amounts. To doso, drop any amount less than 50 centsand increase any amount from 50 centsthrough 99 cents to the next higher dollar.

Attachments

If you need more space on the form orschedules, attach separate sheets. On theattachment, write the corresponding formor schedule number or letter and follow thesame format. Show totals on the printedform. Also include the organization’s nameand employer identification number (EIN).The separate sheets should be the samesize as the printed form and should beattached after the printed form.

Specific InstructionsPeriod covered.—File the 1994 return forcalendar year 1994 or a fiscal yearbeginning in 1994. If the return is for afiscal year, fill in the tax year information atthe top of the form.

Note: For an initial or final return or a change in accounting period, the 1994 Form 990-T may also be used as the return for a short period (less than 12 months)that begins and ends in 1995 if the 1995 Form 990-T is not available by the time the organization is required to file its return.However, the organization must show its 1995 tax year on the 1994 Form 990-T and

incorporate any tax law changes that are effective for tax years beginning after December 31, 1994.

Name and Address.—The name andaddress on Form 990-T should be thesame as the name and address shown onthe mailing label on Package 990 (or990-PF). If any information on the label isincorrect or missing, cross out any errors,print the correct information and add anymissing information.

Include the suite, room, or other unitnumber after the street address. If the PostOffice does not deliver mail to the street



address and the organization has a P.O.box, show the box number instead of thestreet address.

Block A.—Form 8822, Change of Address,can be filed to notify the IRS of a changeof address that occurs after the return isfiled.

Block B.—If the return is filed for an IRAtrust, check the box marked “408(e).”

Block C.—Enter the total of theend-of-year asset values from theorganization’s books of account.

Block D.—An employees’ trust describedin section 401(a) and exempt under section501(a) should enter its own trustidentification number in this block. An IRAtrust enters its own employer identificationnumber (EIN) in this block. An EIN isobtained by filing Form SS-4, Applicationfor Employer Identification Number.

Block E.—Enter the applicable unrelatedbusiness activity code(s) from the list onthe last page of these instructions.

Block F.—If the organization is covered bya group exemption, enter the groupexemption number.

Block G.—Check the box that describesyour organization.

Section 408(a) trusts (IRAs) with $1,000or more of gross income from an unrelatedtrade or business should check the“Section 408(a) trust” box. Section 408(e)provides that income of an IRA is exemptfrom tax with certain exceptions. Forexample, the IRA is subject to tax undersection 511 on income from an unrelatedtrade or business.

If you check “501(c) Corporation,” leaveline 36 blank. If you check “501(c) Trust,”“Section 401(a) trust,” or “Section 408(a)trust,” leave lines 35a, b, and c blank.

Block H.—Describe the primary unrelatedbusiness activity of your organization

based on unrelated income. Attach aschedule if more space is needed.

Block I.—Check the “Yes” box if yourorganization is a corporation and either 1or 2 below applies:

1. The corporation is a subsidiary in anaffiliated group (defined in section 1504)but is not filing a consolidated return forthe tax year with that group.

2. The corporation is a subsidiary in aparent-subsidiary controlled group (definedin section 1563).

Note: If the corporation is an “excluded member” of a controlled group (see section 1563(b)(2)), it is still considered a member of a controlled group for this purpose.

Part I—Unrelated Trade orBusiness IncomeNote: Complete column (A), lines 1 through 13. If the amount on line 13 is $10,000 or less, you may complete only line 13 of columns (B) and (C). These filers do not have to complete Schedules A through K (however, refer to applicable schedules when completing column (A)). If the amount on line 13, column (A), is more than $10,000, complete all lines and schedules that apply.

Line 1a—Gross receipts or sales.— Enterthe gross income from any unrelated tradeor business regularly carried on thatinvolves the sale of goods or performanceof services.

Note: A section 501(c)(7) social club would report its restaurant and bar receipts from nonmembers on line 1, but would report its investment income on Schedule G.

For reporting advance payments, seeRegulations section 1.451-5. To reportincome from long-term contracts, seesection 460.

Generally, the installment method cannotbe used for dealer dispositions of property.See section 453(l) for details andexceptions. For dealer dispositions ofproperty before March 1, 1986,dispositions of property used or producedin the trade or business of farming, andcertain dispositions of timeshares andresidential lots reported under theinstallment method, enter on line 1a thegross profit on collections from installmentsales and carry the same amount to line 3.Attach a schedule showing the followingfor the current year and the 3 precedingyears: (1) gross sales, (2) cost of goodssold, (3) gross profits, (4) percentage of

gross profits to gross sales, (5) amountcollected, and (6) gross profit on amountcollected. For sales of timeshares andresidential lots reported under theinstallment method, the organization’sincome tax is increased by the interestpayable under section 453(l)(3). To reportthis addition to the tax, see the instructionsfor line 43.

Accrual basis taxpayers need not accruecertain amounts to be received from theperformance of services which, on thebasis of their experience, will not becollected (section 448(d)(5)). This provisiondoes not apply to any amount if interest isrequired to be paid on the amount or if

there is any penalty for failure to pay theamount on time. Organizations that fallunder this provision should attach aschedule showing total gross receipts,amounts not accrued as a result of theapplication of section 448(d)(5), and the netamount accrued. The net amount shouldbe entered on line 1a. For moreinformation and guidelines on this“nonaccrual experience method,” seeTemporary Regulations section 1.448-2T.

Line 4a—Capital gain net income.—Generally, organizations required to fileForm 990-T (except organizationsdescribed in sections 501(c)(7), (9), and(17)) are not taxed on the net gains fromthe sale, exchange, or other disposition ofproperty. However, net capital gains ondebt-financed property, capital gains oncutting timber, and ordinary gains onsections 1245, 1250, 1252, 1254, and1255 property are taxed. See Form 4797,Sales of Business Property, and itsinstructions for additional information.

Capital gains and losses should bereported by a trust on Schedule D (Form1041), Capital Gains and Losses, and by acorporation on Schedule D (Form 1120).

An organization that transfers securitiesit owns for the contractual obligation of the

borrower to return identical securitiesrecognizes no gain or loss. To qualify forthis treatment, the organization must lendthe securities under an agreement thatrequires:

1. The return of identical securities;

2. The payment of amounts equivalent tothe interest, dividends, and otherdistributions that the owner of thesecurities would normally receive; and

3. The risk of loss or opportunity for gainnot be lessened.

See section 512(a)(5) for details.The amount of gain or loss to be

reported on the sale, exchange, or otherdisposition of debt-financed property is thesame percentage as the highestacquisition indebtedness for the propertyfor the 12-month period before the date ofdisposition is to the average adjusted basisof the property. The percentage may notbe more than 100%. See the instructionsfor Schedule E, column 5, to determineadjusted basis and average adjusted basis.

Example. On January 1, 1993, anexempt educational corporation purchasedan office building for $608,000 using$288,000 of borrowed funds. The only

adjustment to basis was $36,990 fordepreciation (straight line method underMACRS over the 31.5-year recovery periodfor nonresidential real property). Thecorporation sold the building on December31, 1994, for $640,000. At the date of sale,the adjusted basis of the building was$571,010 ($608,000 less $36,990) and theindebtedness remained at $288,000. Theadjusted basis of the property on the firstday of the year of disposition was$589,505. The average adjusted basiswould be $580,258 (($589,505 + $571,010) 2). The debt/basis percentage would be50% ($288,000 $580,258).

The taxable gain is $34,495 (50%

($640,000 – $571,010)). This is a long-termcapital gain. A corporation should enter thegain on line 6, Part II, Schedule D (Form1120); a trust should use line 7, Part II,Schedule D (Form 1041). Both shouldattach a statement to the return showinghow the gain was figured.

If debt- financed property is depreciableor depletable property, the provisions ofsections 1245, 1250, 1252, 1254, and1255 must be considered first.

Line 4b—Net gain or (loss).—Show gainsand losses on other than capital assets onForm 4797. Enter on this line the net gainor (loss) from Part II, line 20, Form 4797.

An exempt organization using Form 4797

to report ordinary gain on sections 1245,1250, 1252, 1254, and 1255 property willinclude only depreciation, amortization, ordepletion allowed or allowable in figuringunrelated business taxable income ortaxable income of the organization (or apredecessor organization) for a periodwhen it was not exempt.

Line 4c—Capital loss deduction fortrusts.—If a trust has a net capital loss, itis subject to the limitations of Schedule D(Form 1041). Enter on this line the lossfigured on Schedule D (Form 1041).



Line 5—Income or (loss) frompartnerships.—If the organization is apartner in a partnership carrying on anunrelated trade or business, enter theorganization’s share (whether or notdistributed) of the partnership’s income orloss from the unrelated trade or business.

Figure the gross income and deductionsof the partnership in the same way youfigure unrelated trade or business incomethe organization earns directly.

Attach a statement to this returnshowing the organization’s share of thepartnership’s gross income from theunrelated trade or business, and its shareof the partnership deductions directlyconnected with the unrelated grossincome. See Forms 6198 and 8582 (fortrusts) or Form 8810 (for corporations), andsections 465 and 469 for limitations onlosses for certain activities.

For partnership years beginning beforeJanuary 1, 1994, an organization’s entireshare of gross income from a publiclytraded partnership interest acquired afterDecember 17, 1987, is unrelated trade orbusiness income from the partnership,regardless of the type of income. Theorganization may deduct its share of the

partnership’s deductions in computingunrelated business taxable income. Note:Effective for partnership years beginning on or after January 1, 1994, income from publicly traded partnerships is treated the same as income from other partnerships.

Line 12—Other income.—Enter on line 12any item of unrelated business income thatis not reportable elsewhere on the return.Include recoveries of bad debts deductedin earlier years under the specificcharge-off method. Attach a separateschedule of any items of other income toyour return.

● Organizations described in section 501(c)(19).— Enter the net income from

insurance business that was not properlyset aside. These organizations may setaside income from payments received forlife, sick, accident, or health insurance formembers of the organization or theirdependents:

1. To provide for the payment ofinsurance benefits; or

2. For a purpose specified in section170(c)(4) (religious, charitable, scientific ,literary, educational, etc.); or

3. For administrative costs directlyconnected with benefits described in 1 and2 above.

Amounts set aside and used for

purposes other than those in 1, 2, or 3above, must be included in unrelatedbusiness taxable income for the tax year ifthey were previously excluded from taxableincome.

Any amount spent for a purposedescribed in section 170(c)(4) is firstconsidered paid from funds earned by theorganization from insurance activities if theincome is not used for the insuranceactivities.

Expenditures for lobbying are notconsidered section 170(c)(4) expenses.

● Income from property financed with qualified 501(c)(3) bonds.— If any part ofthe property is used in a trade or businessof any person other than a section501(c)(3) organization or a governmentalunit, your section 501(c)(3) organization isconsidered to have received unrelatedbusiness income in the amount of thegreater of the actual rental income or thefair rental value of the property for theperiod it is used. No deduction is allowedfor interest on the private activity bond.Report the greater of the actual rent or the

fair rental value on line 12. Reportallowable deductions in Part II. See section150(b)(3) for more information.

● Passive foreign investment company (PFIC) shareholders.— If your organizationis a direct or indirect shareholder of a PFICwithin the meaning of section 1296, it mayhave income tax consequences undersection 1291 on the disposition of thePFIC stock or on receipt of an excessdistribution from the PFIC, described insection 1291(a). Your organization mayhave current income under section 1293 ifthe PFIC is a qualified electing fund (QEF)with respect to the organization.

Include on line 12 the portion of an

excess distribution or section 1293inclusion that is taxable as unrelatedbusiness taxable income. See Form 8621,Return by a Shareholder of a PassiveForeign Investment Company or QualifiedElecting Fund, for more information onreporting excess distributions and currentincome inclusions.

See the instructions for Part III, lines 35cand 36 for reporting the deferred taxamount that may be owed by yourorganization with respect to an excessdistribution.

Part II—Deductions NotTaken ElsewhereNote: If the amount on Part I, line 13,column (A), is $10,000 or less, do not complete lines 14 through 28 of Part II.Instead, complete only lines 29 through 34 of Part II. Complete Parts III through V and the signature area on page 2. Part II, lines 14 through 34, must be completed by all organizations with unrelated trade or business gross income (Part I, line 13,column (A)) over $10,000.

Only expenses directly connected withunrelated trade or business income (exceptcontributions) may be deducted on theselines (see Directly Connected Expenseson page 2). Contributions may bededucted, whether or not directlyconnected. Do not separately include inPart II any expenses that are reported inSchedules A through J, other than excessexempt expenses entered on line 26 andexcess readership costs entered on line27. For example, officers’ compensationallocable to advertising income is reportedon Schedule J only, and should not beincluded on Schedule K or line 14 ofPart II.

Limits on Deductions

The following items discuss certain areasin which the amount of the deduction mayto some extent be limited:

1. Activities lacking a profit motive. Ifincome is attributable to an activity lackinga profit motive, a loss from the activitycannot be claimed on Form 990-T.Therefore, in Part I, column (B) and Part II,the total of deductions for expensesdirectly connected with income from anactivity lacking a profit motive is limited tothe amount of that income. Generally, anactivity lacking a profit motive is one thatis not conducted for the purpose ofproducing a profit or one that hasconsistently produced losses when bothdirect and indirect expenses are taken intoaccount.

2. Transactions between relatedtaxpayers. See section 267 for limit ondeductions for unpaid expenses andinterest.

3. Tax preference items. Corporationsmay be required to adjust deductions fordepletion of iron ore and coal, intangibledrilling and exploration and developmentcosts, and the amortizable basis ofpollution control facilities. See section 291to determine the amount of theadjustment.

4. Section 263A uniform capitalizationrules. These rules require organizations tocapitalize or include in inventory certaincosts incurred in connection with theproduction of real and tangible personalproperty held in inventory or held for salein the ordinary course of business.Tangible personal property produced by anorganization includes a film, soundrecording, videotape, book, or similarproperty. The rules also apply to personalproperty (tangible and intangible) acquiredfor resale. Organizations subject to therules are required to capitalize not only

direct costs but an allocable portion ofmost indirect costs (including taxes) thatrelate to the assets produced or acquiredfor resale. Interest expense paid orincurred during the production period ofcertain property must be capitalized and isgoverned by special rules. For moredetails, see Notice 88-99, 1988-2 C.B.422. The uniform capitalization rules alsoapply to the production of propertyconstructed or improved by anorganization for use in its unrelated tradeor business.

Section 263A does not apply to personalproperty acquired for resale if theorganization’s annual average gross

receipts are $10 million or less. It does notapply to timber or to most propertyproduced under a long-term contract.Special rules apply for farmers. The rulesdo not apply to property that is producedfor use by the organization if substantialconstruction had occurred before March 1,1986.

In the case of inventory, some of theindirect costs that must be capitalized are:administration expenses; taxes;depreciation; insurance; compensationpaid to officers attributable to services;rework labor; and contributions to pension,



stock bonus, and certain profit-sharing,annuity, or deferred compensation plans.

The costs that must be capitalized undersection 263A are not deductible until theproperty to which the costs relate is sold,used, or otherwise disposed of by theorganization.

Current deductions may still be claimedfor reasonable research and experimentalcosts under section 174, intangible drillingcosts for oil and gas and geothermalproperty, and mining and exploration anddevelopment costs. Regulations section1.263A-1(e)(3) specifies other indirect coststhat may be currently deducted and thosethat must be capitalized with respect toproduction or resale activities. For moredetails, see Regulations sections 1.263A-1through 1.263A-3.

5. Meals, entertainment, and travelexpenses. The amount deductible formeals and entertainment expenses isgenerally limited to 50% of the amountotherwise allowable. Also, meals must notbe lavish or extravagant; a bona fidebusiness discussion must occur during,immediately before, or immediately afterthe meal, and an employee of theorganization must be present at the meal.

See section 274 for more information onthe 50% rule and for guidance on thededuction limitations applicable to t ravelexpenses.

Note: The following expenses are no longer deductible: (1) Amounts paid or incurred for club dues (including dues for airline and hotel clubs), and (2) Travel expenses for a spouse, dependent, or other individual accompanying an officer or employee of the organization on business travel, unless that spouse, dependent, or other individual is an employee of the organization and the travel is for a bona fide business purpose and would otherwise be deductible by that person.

6. Certain expenses for which credits areallowable. For each of the credits listedbelow, the organization must reduce theotherwise allowable deductions forexpenses used to figure the credit by theamount of the current year credit:

a. The credit for increasing researchactivities.

b. The enhanced oil recovery credit.

c. The disabled access credit, and

d. The employer credit for social securityand Medicare taxes paid on certainemployee tips.

If the organization has any of thesecredits, be sure to figure each current year

credit before figuring the deductions forexpenses on which the credit is based.

Line 16—Repairs and maintenance.—Enter the cost of incidental repairs andmaintenance not claimed elsewhere on thereturn, such as labor and supplies, that donot add to the value or appreciably prolongthe life of the property.

Line 17—Bad debts.—Enter the totalreceivables from unrelated businessactivities that were previously included intaxable income and that became worthlessin whole or in part during the tax year.

Line 18—Interest.—Attach a separateschedule listing the interest being claimedon this line.

If the proceeds of a loan were used formore than one purpose (e.g., to purchasea portfolio investment and to acquire aninterest in a passive activity), an interestallocation must be made. See TemporaryRegulations section 1.163-8T for theinterest allocation rules.

Do not include interest on indebtednessincurred or continued to purchase or carryobligations on which the interest income istotally exempt from income tax. Forexceptions, see section 265(b).

Generally, a cash basis taxpayer cannotdeduct prepaid interest allocable to yearsfollowing the current tax year. For example,a cash basis calendar year taxpayer who in1994 prepaid interest allocable to anyperiod after 1994 can deduct only theamount allocable to 1994.

Generally, the interest and carryingcharges on straddles cannot be deductedand must be capitalized. See section263(g).

See section 163(e)(5) for special rules forthe disqualified portion of original issue

discount on a high yield discountobligation.

Certain interest paid or accrued by theorganization (directly or indirectly) to arelated person may be limited if no tax isimposed on such interest. See section163(j) for more details.

Do not deduct interest on debt allocableto the production of qualified property.Interest that is allocable to such propertyproduced by an organization for its ownuse or for sale must be capitalized. Anorganization must also capitalize anyinterest on debt allocable to an asset usedto produce the above property. Seesection 263A and Notice 88-99 for

definitions and more information.See section 7872 for special rules

regarding the deductibility of foregoneinterest on certain below-market-rateloans.

Line 19—Taxes and licenses.—Entertaxes and license fees paid or accruedduring the year. Do not include Federalincome taxes, excise taxes imposed byChapter 41, 42, or 43, foreign or U.S.possession income taxes if a foreign orpossession income tax credit is claimed(however, see the Instructions for Form5735 for special rules for possessionincome taxes), or taxes not imposed onyour organization. Taxes, including state or

local sales taxes, paid or incurred inconnection with an acquisition ordisposition of property must be treated aspart of the cost of the acquired propertyor, in the case of a disposition, as areduction in the amount realized on thedisposition.

If a corporation is liable forenvironmental tax under section 59A, seeForm 4626, Alternative Minimum Tax—Corporations, for the computation of theenvironmental tax deduction.

See section 164(d) for apportionment oftaxes on real property between the buyerand seller.

Line 20—Charitable contributions.—Entercontributions or gifts actually paid toanother organization within the tax year toor for the use of charitable andgovernmental organizations described insection 170(c). Also, enter any unusedcontributions carried over from earlieryears. The deduction for contributions willbe allowed whether or not directlyconnected with the carrying on of a trade

or business.If a contribution is in property other than

cash and the deduction claimed for theproperty exceeds $500, attach a scheduledescribing the kind of property contributedand the method used in determining its fairmarket value. If the total claimed deductionfor all property contributed was more than$5,000, attach Form 8283, NoncashCharitable Contributions, to the return.

If the organization made a qualifiedconservation contribution under section170(h), also include the fair market value ofthe underlying property before and afterthe donation, the type of legal interestcontributed, and describe the conservation

purpose furthered by the donation.If a contribution carryover is included,

show the amount and how it wasdetermined.

For a special rule for certaincontributions of ordinary income andcapital gain property, see section 170(e).

If a charitable contribution deduction istaken for property sold to a charitableorganization, the adjusted basis fordetermining gain from the sale is anamount that is in the same ratio to theadjusted basis as the amount realized is tothe fair market value of the property.

Corporations.—The total amount claimed

may not be more than 10% of unrelatedbusiness taxable income figured withoutregard to the deduction for charitablecontributions.

Charitable contributions over the 10%limitation may not be deducted for the taxyear, but may be carried over to the next 5tax years.

In figuring the charitable contributionsdeduction, if the corporation has an NOLcarryover to the tax year, the 10% limit isapplied using the taxable income aftertaking into account any deduction for theNOL.

To figure the amount of any remainingNOL carryover to later years, taxable

income must be modified. See section172(b). To the extent charitablecontributions are used to reduce taxableincome for this purpose and increase a netoperating loss carryover, a contributionscarryover is not allowed. See section170(d)(2)(B).

Corporations on the accrual basis mayelect to deduct contributions paid by the15th day of the 3rd month after the end ofthe tax year if the contributions areauthorized by the board of directors duringthe tax year. Attach a declaration to thereturn, signed by an officer, stating that the



resolution authorizing the contributions wasadopted by the board of directors duringthe tax year. Also, attach a copy of theresolution.

Trusts.—In general:

1. For contributions to organizationsdescribed in section 170(b)(1)(A), theamount claimed may not be more than50% of the unrelated business taxableincome figured without this deduction; and

2. For contributions to otherorganizations, the amount claimed may not

be more than the smaller of:a. 30% of unrelated business taxable

income figured without this deduction; or

b. The amount by which 50% of theunrelated business taxable income is morethan the contributions allowed in 1 above.

Note: Contributions not allowable in whole or in part because of the limitations may not be deducted as a business expense,but may be carried over to the next 5 tax years.

Substantiation requirements.—Generally,no deduction is allowed for anycontribution of $250 or more, unless theorganization obtains a writtenacknowledgment from the charitable

organization by the due date (includingextensions) of Form 990-T, or if earlier, thedate Form 990-T is filed. However, seesection 170(f)(8) and the related temporaryregulations for exceptions to this rule. Donot attach the acknowledgment to Form990-T, but keep it with the organization’srecords.

The acknowledgment must show(a) the amount of cash contributed,(b) a description of any propertycontributed, (c) whether the charitableorganization provided any goods orservices to the donor, and (d) a descriptionand a good-faith estimate of the value ofany goods and services provided to the

donor in exchange for the donation, unlessthe goods and services have insubstantialvalue or unless a statement is includedthat these goods and services consistsolely of intangible religious benefits.

Generally, if your organization makes acharitable contribution of more than $75and receives something in return (a quidpro quo contribution), the amount of thecontribution deductible for Federal incometax purposes is limited to the amount bywhich the contribution exceeds the valueof the goods or services received. Thecharitable organization that solicits orreceives the contribution must so informyou of this by written statement and must

provide your organization with a good-faithestimate of the value of goods or servicesgiven in return for the contribution.

An organization must keep records,required by the regulations under section170, for all its charitable contributions.

Contributions to organizationsconducting lobbying activities.—Charitable contributions made to anorganization conducting lobbying activitiesare not deductible if:

● The lobbying activities relate to mattersof direct financial interest to the donor’strade or business, and

● The principal purpose of the contributionwas to avoid Federal income tax byobtaining a deduction for activities thatwould have been nondeductible under thelobbying expense rules if conducteddirectly by the donor. See section 170(f)(9)for more details.

Line 21—Depreciation.—Besidesdepreciation, include on line 21 the part ofthe cost, under section 179, that theorganization elected to expense for certaintangible property placed in service duringtax year 1994 or carried over from 1993.See Form 4562, Depreciation andAmortization, and its instructions.

Line 23—Depletion.—See sections 613and 613A for percentage depletion ratesfor natural deposits. Attach Form T(Timber), Forest Industries Schedules, if adeduction is taken for depletion of timber.

Line 24—Contributions to deferredcompensation plans.—Employers whomaintain pension, profit-sharing, or otherfunded deferred compensation plans aregenerally required to file one of the 5500series forms specified in the followingparagraph. This requirement applieswhether or not the plan is qualified underthe Internal Revenue Code and whether ornot a deduction is claimed for the currenttax year. Section 6652(e) imposes apenalty for late filing of these forms. Inaddition, there is a penalty for overstatingthe pension plan deduction. See section6662(f).

Form 5500.—Complete this form for eachplan with 100 or more participants.

Form 5500-C/R.—Complete this form foreach plan with fewer than 100 participants.

Line 25—Employee benefit programs.—Enter the amount of contributions to

employee benefit programs (e.g.,insurance, health and welfare programs)that are not an incidental part of a deferredcompensation plan included on line 24.

Line 28—Other deductions.—Enter onthis line the deduction taken foramortization (see Form 4562) as well asother authorized deductions for which nospace is provided on the return. Attach aseparate schedule listing the deductionsclaimed on this line. Deduct only itemsdirectly connected with the unrelated tradeor business for which income is reported inPart I.

Do not deduct fines or penalties paid toa government for violating any law.

Line 31—Net operating loss deduction.—The “net operating loss deduction” is thetotal of the net operating loss carryoversand carrybacks that can be deducted inthe tax year. See section 172(a).

To be deductible, a net operating lossmust have been incurred in an unrelatedtrade or business activity. The amount of anet operating loss carryback or carryover isdetermined under section 172. SeeRegulations section 1.512(b)-1(e).

Line 33—Specific deduction.—A specificdeduction of $1,000 is allowed except for

computing the net operating loss and thenet operating loss deduction under section172.

Only one specific deduction may betaken, regardless of the number ofunrelated businesses conducted. However,a diocese, province of a religious order, orconvention or association of churches isallowed one specific deduction for eachparish, individual church, district, or otherlocal unit that regularly conducts anunrelated trade or business. This appliesonly to those parishes, districts, or other

local units that are not separate legalentities, but are components of a largerentity (diocese, province, convention, orassociation). Each specific deduction willbe the smaller of $1,000 or the grossincome from any unrelated trade orbusiness the local unit conducts. If youclaim a total specific deduction larger than$1,000, attach a schedule showing howyou figured the amount.

The diocese, province of a religiousorder, or convention or association ofchurches must file a return reporting thegross income and deductions of all itsunits that are not separate legal entities.These local units cannot file separate

returns because they are not separatelyincorporated. Local units that areseparately incorporated must file their ownreturns and cannot be included with anyother entity except for a title holdingcompany. See the instructions underConsolidated Returns on page 3.

For details on the specific deduction,see section 512(b)(12) and the relatedregulations.

Part III—Tax ComputationLines 35a and 35b.—Corporate membersof a controlled group, as defined insection 1563, are entitled to one $50,000,one $25,000, and one $9,925,000 taxable

income bracket amount (in that order) online 35a.

When a controlled group adopts or lateramends an apportionment plan, eachmember must attach to its tax return acopy of its consent to this plan. The copy(or an attached statement) must show thepart of the amount in each taxable incomebracket apportioned to that member. SeeRegulations section 1.1561-3(b) for otherrequirements and for the time and mannerof making the consent.

Equal Apportionment Plan.— If noapportionment plan is adopted, membersof a controlled group must divide theamount in each taxable income bracket

equally among themselves. For example,Controlled Group AB consists ofCorporation A and Corporation B. They donot elect an apportionment plan. Therefore,Corporation A and Corporation B are eachentitled to $25,000 (one-half of $50,000) inthe $50,000 taxable income bracket on line35a(1), $12,500 (one-half of $25,000) in the$25,000 taxable income bracket on line35a(2), and $4,962,500 (one-half of$9,925,000) in the $9,925,000 taxableincome bracket on line 35a(3).



Unequal Apportionment Plan.— Members of a controlled group may electan unequal apportionment plan and dividethe taxable income brackets as they wish.There is no need for consistency amongtaxable income brackets. Any member ofthe controlled group may be entitled to all,some, or none of the taxable incomebracket. However, the total amount for allmembers of the controlled group cannotbe more than the total amount in eachtaxable income bracket.

Additional 5% tax and additional 3%

tax.—Members of a controlled group aretreated as one corporation for purposes offiguring the applicability of the additional5% tax that must be paid by corporationswith taxable income in excess of $100,000and the additional 3% tax that must bepaid by corporations with taxable incomein excess of $15 million. If either additionaltax applies, each member of the controlledgroup will pay that tax based on the partof the amount that is used in each taxableincome bracket to reduce that member’stax. See section 1561(a). Each membermust enter its share of the additional 5%tax on line 35b(1) and its share of the 3%tax on line 35b(2) and attach to its taxreturn a schedule that shows the taxableincome of the entire group, as well as howits share of the additional tax was figured.

Lines 35c and 36

Deferred tax amount under section1291.—If your organization has an excessdistribution from a passive foreigninvestment company (PFIC) that is taxableas unrelated business taxable income, theorganization may owe the deferred taxamount defined in section 1291(c)(1). Theportion of the deferred tax amount that isthe aggregate increases in taxes(described in section 1291(c)(2)) must beincluded in the amount entered on line 35cor 36. Write to the left of line 35c or 36,

“Sec. 1291” and the amount. Do notinclude on line 35c or 36 the portion of thedeferred tax amount that is the aggregateamount of interest determined undersection 1291(c)(3). Instead, write “Sec.1291 interest” and the amount in thebottom right margin of page 2, Form990-T. See Form 8621, Return by aShareholder of a Passive ForeignInvestment Company or Qualified ElectingFund, Part III.

Line 35c—Corporations.—A corporationmust compute the tax on its taxableincome using the Tax Rate Schedule forCorporations on this page (members of acontrolled group should see the

instructions on page 8 for lines 35a and b).If the organization is a trust, skip to line 36to figure the tax.

Line 36—Trusts.—Trusts exempt undersection 501(a), which otherwise would besubject to subchapter J (estates, trusts,etc.), are taxed at trust rates. This rule alsoapplies to employees’ trusts that qualifyunder section 401(a). Trusts figure the taxon the amount on line 34 using the TaxRate Schedule for Trusts on this page or, ifthe trust is eligible for the maximum 28%rate on net capital gains, completeSchedule D (Form 1041) and enter the tax

from Part VI of Schedule D (Form 1041) onpage 2, line 36. Check the “Schedule D”box on line 36 and attach Schedule D(Form 1041) to Form 990-T.

Tax Rate Schedule for

Corporations(Section 11 of the Internal Revenue Code)

If the amount on line 34, Enter on line 35c, page 2: page 1 is:

Of the But not amount

Over— over— Tax is: over—

$0 $50,000 15% $050,000 75,000 $7,500 + 25% 50,00075,000 100,000 13,750 + 34% 75,000

100,000 335,000 22,250 + 39% 100,000335,000 10,000,000 113,900 + 34% 335,000

10,000,000 15,000,000 3,400,000 + 35% 10,000,00015,000,000 18,333,333 5,150,000 + 38% 15,000,00018,333,333 - - - - - 35% 0

Tax Rate Schedule for Trusts(Section 1(e) of the Internal Revenue Code)

If the amount on line 34, Enter on line 36, page 2: page 1 is:

Of the But not amount

Over— over— Tax is: over—

$0 $1,500 15% $01,500 3,600 $225 + 28% 1,5003,600 5,500 813 + 31% 3,6005,500 7,500 1,402 + 36% 5,5007,500 - - - - - 2,122 + 39.6% 7,500

Worksheet for Members of aControlled Group

(keep for your records)

Each member of a controlled groupmust compute the tax using thecomputation below:

1. Enter unrelated business taxable income

(line 34, page 1, Form 990-T)2. Enter line 1 or the corporation’s share of

the $50,000 taxable income bracket,whichever is less

3. Subtract line 2 from line 1

4. Enter line 3 or the corporation’s share ofthe $25,000 taxable income bracket,whichever is less


6. Enter line 5 or the corporation’s share ofthe $9,925,000 taxable income bracket,whichever is less


8. Enter 15% of line 2




12. If the taxable income of the controlledgroup exceeds $100,000, enter thismember’s share of the smaller of:(a) 5% of the excess over $100,000, or(b) $11,750. (See instructions foradditional 5% and additional 3% taxabove.)

13. If the taxable income of the controlledgroup exceeds $15 million, enter thismember’s share of the smaller of:(a) 3% of the excess over $15 million, or(b) $100,000 (See instructions foradditional 5% and additional 3% taxabove.)

14. Add lines 8 through 13. Enter here and online 35c, page 2, Form 990-T

Line 37

Proxy tax.—To pay the section 6033(e)(2)proxy tax on nondeductible lobbying andpolitical expenditures, enter the proxy taxon line 37 and attach a schedule showingthe computation.

Exempt organizations, except section501(c)(3) and certain other organizations,must include certain information regardinglobbying expenditures on Form 990. Inaddition, organizations may have toprovide notices to members regarding theirshare of dues to which the expendituresare allocable. See Form 990 instructionsfor exceptions and other details.

If the organization elects not to providethe notices described above, it must paythe proxy tax described in section6033(e)(2). If the organization does notinclude the entire amount of allocable duesin the notices, it may have to pay theproxy tax. This tax is not applicable tosection 501(c)(3) organizations. Figurethe proxy tax by multiplying the aggregateamount not included in the noticesdescribed above by 35%. No deductionsare allowed.

Part IV—Tax and PaymentsLine 38a—Foreign tax credit

● Corporations.—See Form 1118, ForeignTax Credit—Corporations, for anexplanation of when a corporation can takethis credit for payment of income tax to aforeign country or U.S. possession.

● Trusts.—See Form 1116, Foreign TaxCredit (Individual, Estate, Trust, orNonresident Alien Individual), for rules onhow the trust computes the foreign taxcredit.

Complete the form that applies to theorganization and attach the form to itsForm 990-T. Enter the credit on this line.

Line 38b—Other credits

● Possessions tax credit.—See Form5712, Election To Be Treated as aPossessions Corporation Under Section936, for rules on how to elect to claim thepossessions tax credit (section 936).Compute the credit on Form 5735,Possessions Corporation Tax CreditAllowed Under Section 936.

● Nonconventional source fuel credit.—A credit is allowed for the sale of qualifiedfuels produced from a nonconventionalsource. Section 29 contains a definition ofqualified fuels, provisions for figuring thecredit, and other special rules. Attach aseparate schedule to the return showingthe computation of the credit. Also, seeForm 8801, Credit for Prior Year MinimumTax—Individuals, Estates, and Trusts, orForm 8827, Credit for Prior Year MinimumTax—Corporations, if any of the 1993nonconventional source fuel credit isdisallowed solely because of the tentativeminimum tax limitation. See section 53(d).

● Qualified electric vehicle credit.—Include on line 38b any credit from Form8834, Qualified Electric Vehicle Credit.Vehicles that qualify for this credit are not



eligible for the deduction for clean-fuelvehicles under section 179A.

Line 38c—General business credit

Form 3800, General Business Credit.—Complete Form 3800 if the organizationhas:

1. More than one of the credits listedbelow; OR

2. A credit carryforward or carryback(including one from an ESOP credit); OR

3. A passive activity credit (other than

the low-income housing credit).Enter the amount of the general

business credit on line 38c and check theForm 3800 box on that line. Attach Form3800 and the other applicable credit formsto Form 990-T.

Form 3800 is not required if theorganization has only one of the generalbusiness credits (and items 2 and 3 abovedo not apply). Instead, attach theapplicable credit form to the return, checkthe Form box, and specify the formnumber.

For Form 990-T filers, the generalbusiness credit includes:

● Investment credit.—The organizationmay claim the investment credit forproperty placed in service that is qualifiedrehabilitation, energy, qualified timber, ortransition property. See Form 3468,Investment Credit, for definitions and otherdetails.

● Alcohol fuel credit.—The organizationmay be able to take a credit for alcoholused as fuel. Use Form 6478, Credit forAlcohol Used As Fuel, to figure the creditand attach it to Form 990-T.

● Credit for increasing researchactivities.—See Form 6765, Credit forIncreasing Research Activities, and section41.

●

Low-Income Housing Credit.—Seesection 42 and Form 8586, Low-IncomeHousing Credit.

● Disabled access credit.—Anorganization may be able to take a creditfor certain expenses paid or incurred toassist disabled individuals. Use Form8826, Disabled Access Credit, to figure thecredit.

● Enhanced oil recovery credit.—Anorganization may claim a credit of 15% ofqualified enhanced oil recovery costs. UseForm 8830, Enhanced Oil Recovery Credit,to figure the credit.

● Renewable electricity productioncredit.—An organization may be able to

take a credit for electricity produced by theorganization using closed-loop biomass orwind and sold to an unrelated person. UseForm 8835, Renewable ElectricityProduction Credit, to figure the credit.

● Credit for Employer Social Securityand Medicare Taxes Paid on CertainEmployee Tips.—Use Form 8846, Creditfor Employer Social Security and MedicareTaxes Paid on Certain Employee Tips, tofigure the credit.

● Credit for Contributions to SelectedCommunity DevelopmentCorporations.—An organization may claima credit for contributions to certaincommunity development corporations. UseForm 8847, Credit for Contributions toSelected Community DevelopmentCorporations, to figure the credit.

Line 38d—Credit for prior year minimumtax.—Use Form 8801 to figure theminimum tax credit and any carryforwardof that credit for trusts. For corporations,use Form 8827.

Line 41—Recapture Taxes

Recapture of investment credit.—Ifproperty is disposed of, or ceases to bequalified property, before the end of therecapture period or the useful lifeapplicable to the property, there may be arecapture of the credit. See Form 4255,Recapture of Investment Credit.

Recapture of low-income housingcredit.—If you must recapture part of thelow-income housing credit because therehas been a decrease in the qualified basisof a building from the prior year or if youdisposed of the building or an ownershipinterest in it, see Form 8611, Recapture of

Low-Income Housing Credit, and section42(j).

Recapture of qualified electric vehicle(QEV) credit.—The organization mustrecapture part of the QEV credit it claimedin a prior year if within 3 years of the datethe vehicle was placed in service, it ceasesto qualify for the credit. Get Pub. 535,Business Expenses, for details on how tofigure the recapture. Include the amount ofthe recapture in the total for line 41. Onthe dotted line next to the entry space,write “QEV” and the amount.

Line 42a—Alternative minimum tax.—Organizations liable for tax on unrelatedbusiness taxable income may be liable for

alternative minimum tax on certainadjustments and tax preference items.Trusts attach Schedule H, AlternativeMinimum Tax, of Form 1041 and enter anytax from Schedule H on this line.Corporations attach Form 4626 and enterany tax from Form 4626 on this line.

Reduce alternative minimum tax by anyamount on line 34 of Schedule A, Form3800. Write in the margin to the left of line42a, “Sec. 38(c)(3)” and the amount.

Line 42b—Environmental tax.—Corporations should attach Form 4626 andenter any environmental tax on this line.Corporations may be liable for theenvironmental tax even if there is no

alternative minimum tax due.Line 42c.—Enter the total of lines 42a and42b.

Line 43—Total tax

Interest on tax attributable to paymentsreceived on installment sales of certaintimeshares and residential lots.—If theorganization elected to pay interest on theamount of tax attributable to paymentsreceived on installment obligations fromthe disposition of certain timeshares andresidential lots under section 453(l)(3), itmust include the interest due in the

amount entered on line 43, Form 990-T.Write on the dotted line to the left of line43, “Sec. 453(l)(3) interest” and theamount. Attach a schedule showing thecomputation.

Interest on tax deferred under theinstallment method for certain nondealerinstallment obligations.—If an obligationfrom the disposition of property to whichsection 453A applies is outstanding at theclose of the year, the organization mustinclude the interest due under section453A(c) in the amount entered on line 43,

Form 990-T. Write on the dotted line to theleft of line 43, “Sec. 453A(c) interest” andthe amount. Attach a schedule showingthe computation.

Interest under the look-back method forcompleted long-term contracts.—Include the interest due under thelook-back method of section 460(b)(2) online 43. Write on the dotted line to the leftof the entry space, “From Form 8697” andthe amount of interest due.

Line 44b—Estimated tax.—Enter the totalestimated tax payments made for the taxyear.

If an organization is the beneficiary of atrust, and the trust makes a section 643(g)election to credit its estimated taxpayments to its beneficiaries, include theorganization’s share of the estimated taxpayment in the total amount entered here.In the entry space to the left of line 44b,write “T” and the amount attributable to it.

Line 44d—Foreign organizations.—Enterthe tax withheld on unrelated businesstaxable income from U.S. sources that isnot effectively connected with the conductof a trade or business within the UnitedStates. Attach Form 1042-S, ForeignPerson’s U.S. Source Income Subject toWithholding, or other form which verifiesthe tax withheld reported on line 44d.

Line 44e—Other credits and payments.—Enter on this line the following:

Credit from regulated investmentcompany (RIC).—Attach Form 2439,Notice to Shareholder of UndistributedLong-Term Capital Gains. If you are filing acomposite Form 990-T, see Notice 90-18.

Credit for Federal tax paid on fuels.—Attach Form 4136, Credit for Federal TaxPaid on Fuels.

Credit for ozone-depleting chemicals.—Include on line 44e any credit theorganization is claiming under section4682(g)(4) for taxes paid on chemicalsused as propellants in metered-doseinhalers.

Refunds of erroneous backupwithholding.—Recipients of dividend orinterest payments must generally certifytheir correct tax identification number tothe bank or other payer on Form W-9. Ifthe payer does not get this information, itmust withhold part of the payments as“backup withholding.” If your organizationwas subject to erroneous backupwithholding because the payer did notrealize you were an exempt organizationand not subject to this withholding, youcan claim credit for the amount withheldby including it on line 44e and writing



“ERRONEOUS BACKUP WITHHOLDING”to the left of the entry space.

If your only reason for filing a Form990-T is to claim a refund of thiswithholding, complete only the year, name,address, and employer identificationnumber at the top of the form. Enter zeroon lines 13 (column (A)), 34, and 43 andcomplete line 44e as described on page10. Also, complete lines 45 and 48. Fill inthe signature and Paid Preparer’s areas,and attach a copy of the Form 1099statement(s) showing the withholding.

Line 47—Tax due.—All organizations mustpay the tax due in full when the return isfiled, but no later than the 15th day of the5th month after the end of the tax year.

Domestic organizations and foreignorganizations with an office or place ofbusiness in the United States must depositincome tax payments and estimated taxpayments with a Federal Tax DepositCoupon (Form 8109). Make these taxdeposits with either a financial institutionqualified as a depositary for Federal taxesor the Federal Reserve bank or branchservicing the geographic area where theorganization is located. Do not submitdeposits directly to an IRS office;

otherwise, the organization may be subjectto a failure to deposit penalty. Records ofdeposits will be sent to the IRS forcrediting to the organization’s account.See the instructions in the coupon book(Form 8109) for details.

All foreign organizations that do not havean office or place of business in the UnitedStates may pay the tax by check or moneyorder (in U.S. dollars) payable to theInternal Revenue Service. The tax duemust be paid in full when the return isfiled.

Part V—Statements RegardingCertain Activities and Other

InformationBe sure to complete all items in Part V.

Question 1.—Check the “Yes” box if either1 or 2 below applies:

1. At any time during the year theorganization had an interest in or signatureor other authority over a financial accountin a foreign country (such as a bankaccount, securities account, or otherfinancial account); AND

a. The combined value of the accountswas more than $10,000 at any time duringthe year; AND

b. The accounts were NOT with a U.S.military banking facility operated by a U.S.

financial institution.2. The organization owns more than

50% of the stock in any corporation thatwould answer “Yes” to item 1 above.

If “Yes” is checked to question 1, writethe name of the foreign country orcountries. Attach a separate sheet if morespace is needed.

Get Form TD F 90-22.1, Report ofForeign Bank and Financial Accounts, tosee if the organization is considered tohave an interest in or signature or otherauthority over a financial account in a

foreign country (such as a bank account,securities account, or other financialaccount). The organization can obtainForm TD F 90-22.1 from the IRS FormsDistribution Center. If the organization isrequired to file this form, file it by June 30,1995, with the Department of the Treasuryat the address shown on the form. Do notfile it with the IRS or attach it to Form990-T.

Question 2.—Check the “Yes” box if theorganization was ever a grantor of, ortransferor to, a foreign trust that existed

during this tax year.Item 3.—Report any tax-exempt interestreceived or accrued in the space provided.Include any exempt-interest dividendsreceived as a shareholder in a mutual fundor other regulated investment company.

Signature

Corporations.—The return must be signedand dated by the president, vice president,treasurer, assistant treasurer, chiefaccounting officer, or by any othercorporate officer (such as tax officer)authorized to sign. Receivers, trustees, orassignees must also sign and date anyreturn filed on behalf of the organization.

Trusts.—The return must be signed anddated by the individual fiduciary, or by theauthorized officer of the trust receiving orhaving custody, or control andmanagement of the income of the trust. Iftwo or more individuals act jointly asfiduciaries, any one of them may sign.

Paid preparer.—If an officer of theorganization filled in its return, the PaidPreparer’s space should remain blank.Anyone who prepares the return but doesnot charge the organization should notsign the return. Certain others who preparethe return should not sign. For example, aregular, full-time employee of theorganization, such as a clerk, secretary,

etc., should not sign.Generally, anyone who is paid to prepare

the organization’s tax return must sign itand fill in the Paid Preparer’s Use Onlyarea of the return.

The paid prepayer must complete therequired preparer information and:

● Sign the return, by hand, in the spaceprovided for the preparer’s signature.(Signature stamps or labels are notacceptable.)

● Give a copy of the return to theorganization.

Schedule A—Cost of Goods

SoldNote: If an organization is using Schedule A to figure cost of goods sold where inventories are not an income-determining factor, it should enter a zero on lines 1 and 6 of the schedule.

See the instructions below beforecompleting Schedule A.

Inventory valuation methods.—Inventories can be valued at (1) cost,(2) cost or market value (whichever islower), or (3) any other method that isapproved by the IRS, and that conforms to

the provisions of the applicable regulationscited below.

Organizations using erroneous valuationmethods must change to a methodpermitted for Federal income tax purposes.Such a change should be made by filingForm 3115, Application for Change inAccounting Method. For more information,see Regulations section 1.446-1(e)(3) andRev. Proc. 92-20, 1992-1 C.B. 685.

Inventory may be valued below costwhen the merchandise is (1) unsalable atnormal prices, or (2) unusable in thenormal way because the goods are“subnormal” (because of damage,imperfections, shop wear, etc.) within themeaning of Regulations section 1.471-2(c).The goods may be valued at a currentbona fide selling price, minus direct cost ofdisposition (but not less than scrap value),if such a price can be established. SeeRegulations section 1.471-2(c) for morerequirements.

If this is the first year the “Last-inFirst-out” (LIFO) inventory method waseither adopted or extended to inventorygoods not previously valued under theLIFO method provided in section 472,attach Form 970, Application To Use LIFO

Inventory Method, or a statement with theinformation required by Form 970.

If the organization changed or extendedits inventory method to LIFO and had to“write up” its opening inventory to cost inthe year of election, report the effect ofthis write up as income (line 12, page 1)proportionately over a 3-year period thatbegins in the tax year the election wasmade (section 472(d)).

Section 263A uniform capitalizationrules.—The uniform capitalization rules ofsection 263A are discussed in general inthe instructions for Limits on deductionson page 6. See those instructions beforeproceeding.

Schedule A, line 4a.—An entry is requiredon this line only for organizations that haveelected a simplified method of accounting.

For organizations that have elected thesimplified production method, additionalsection 263A costs are generally thosecosts, other than interest, that are nowrequired to be capitalized under section263A but that were not capitalized underthe organization’s method of accountingimmediately prior to the effective date ofsection 263A. For more details, seeRegulations section 1.263A-2(b).

For organizations that have elected thesimplified resale method, additional section263A costs are generally those costsincurred with respect to the followingcategories: off-site storage or warehousing;purchasing; handling, processing,assembly, and repackaging; and generaland administrative costs (mixed servicecosts). For more details, see Regulationssection 1.263A-3(d).

Enter on line 4a the balance of section263A costs paid or incurred during the taxyear not included on lines 2 and 3.

Schedule A, line 4b.—Enter on line 4b anycosts paid or incurred during the tax yearnot entered on lines 2 through 4a.



Schedule A, line 6.—See Regulationssections 1.263A-1 through 1.263A-3 fordetails on figuring the amount of additionalsection 263A costs to be included inending inventory.

Schedule C—Rent IncomeSections 501(c)(7), (9), and (17)organizations, enter gross rents on Part I,line 6, and applicable expenses on Part II,lines 14 through 28. All rents except thosethat are exempt function income must beincluded.

All organizations that have applicablerent income, other than sections 501(c)(7),(9), and (17) organizations, shouldcomplete Schedule C on page 3 of thereturn. For organizations other thansections 501(c)(7), (9), and (17)organizations, only the following rents aretaxable in Part I, line 6:

1. Rents from personal property leasedwith real property, if the rents from thepersonal property are more than 10% ofthe total rents received or accrued underthe lease, determined at the time thepersonal property is placed in service.

2. Rents from real and personal property

if:a. More than 50% of the total rents

received or accrued under the lease are forpersonal property; or

b. The amount of the rent depends onthe income or profits derived by anyperson from the property leased (except anamount based on a fixed percentage ofreceipts or sales).

A redetermination of the percentage ofrent for personal property is required wheneither:

1. There is an increase of 100% or moreby the placing of additional or substitutepersonal property in service; or

2. There is a modification of the leasethat changes the rent charged.

Rents from both real and personalproperty not taxable in Part I, line 6 maybe taxable on line 8 if the income is from acontrolled organization or on line 7 if theproperty is debt- financed. Taxability of therents must be considered in that order;that is, rents not taxed on line 6 may betaxed on line 8 and rents not taxed on line6 or line 8 may be taxed on line 7.

Rents from personal property that is notleased with real property should bereported on line 12 of Part I.

See Form 8582 (for trusts) or Form 8810(for corporations) and section 469 for

limitations on losses from rental activities.

Schedule E—UnrelatedDebt–Financed IncomeSchedule E applies to all organizationsexcept sections 501(c)(7), (9), and (17)organizations.

When debt- financed property is held forexempt purposes and other purposes, theorganization must allocate the basis, debt,income, and deductions among thepurposes for which the property is held.

Do not include in Schedule E amountsallocated to exempt purposes.

Column 1—Description of debt-financedproperty.—Any property held to produceincome is debt-financed property if at anytime during the tax year there wasacquisition indebtedness outstanding forthe property. When any property held forthe production of income by anorganization is disposed of at a gain duringthe tax year, and there was acquisitionindebtedness outstanding for that propertyat any time during the 12-month period

before the date of disposition, the propertyis debt- financed property. Securitiespurchased on margin are considereddebt-financed property if the liabilityincurred in purchasing them remainsoutstanding.

Acquisition indebtedness is theoutstanding amount of principal debtincurred by the organization to acquire orimprove the property:

1. Before the property was acquired orimproved, if the debt was incurredbecause of the acquisition or improvementof the property; or

2. After the property was acquired orimproved, if the debt was incurredbecause of the acquisition or improvement,and the organization could reasonablyforesee the need to incur the debt at thetime the property was acquired orimproved.

With certain exceptions, acquisitionindebtedness does not include debtincurred by:

1. A qualified (section 401) trust inacquiring or improving real property. Seesection 514(c)(9) for more details.

2. A tax-exempt school (section170(b)(1)(A)(ii)) and its affiliated supportorganizations (section 509(a)(3)) forindebtedness incurred after July 18, 1984.

3. An organization described in section501(c)(25) in tax years beginning afterDecember 31, 1986.

See Pub. 598 for additional exceptionsto the rules for debt-financed property.

Column 2.—Income is not unrelateddebt-financed income if it is otherwiseincluded in unrelated business taxableincome. For example, do not include rentsfrom personal property shown in ScheduleC, or rents and interest from controlledorganizations shown in Schedule F.

Column 4.—Average acquisitionindebtedness for any tax year is theaverage amount of the outstandingprincipal debt during the part of the tax

year the property is held by theorganization. To figure the average amountof acquisition debt, determine the amountof the outstanding principal debt on thefirst day of each calendar month duringthat part of the tax year that theorganization holds the property. Add theseamounts together, and divide the result bythe total number of months during the taxyear that the organization held theproperty. See section 514(a) and therelated regulations for property acquiredfor an indeterminate price.

Column 5.—The average adjusted basisfor debt-financed property is the averageof the adjusted basis of the property onthe first and last days during the tax yearthat the organization holds the property.Determine the adjusted basis of propertyunder section 1011. Adjust the basis of theproperty by the depreciation for all earliertax years, whether or not the organizationwas exempt from tax for any of theseyears. Similarly, for tax years during whichthe organization is subject to tax onunrelated business taxable income, adjust

the basis of the property by the entireamount of allowable depreciation, eventhough only a part of the deduction fordepreciation is taken into account infiguring unrelated business taxable income.

If no adjustments to the basis ofproperty under section 1011 apply, thebasis of the property is cost.

See section 514(d) and the relatedregulations for the basis of debt-financedproperty acquired in a complete or partialliquidation of a corporation in exchange forits stock.

Column 7.—The amount of income fromdebt-financed property included inunrelated trade or business income is

figured by multiplying the property’s grossincome by the percentage obtained fromdividing the property’s average acquisitionindebtedness for the tax year by theproperty’s average adjusted basis duringthe period it is held in the tax year. Thispercentage cannot be more than 100%.

Column 8.—For each debt-financedproperty, deduct the same percentage (asdetermined above) of the total deductionsthat are directly connected to the income(including the dividends-receiveddeductions allowed by sections 243, 244,and 245). However, if the debt-financedproperty is depreciable property, figure thedepreciation deduction by the straight line

method only, and enter the amount incolumn 3(a).

For each debt- financed property, attachschedules showing separately acomputation of the depreciation deduction(if any) reported in column 3(a) and abreakdown of the expenses included incolumn 3(b). Corporations owning stockthat is unrelated debt-f inanced propertyshould see Schedule C (Dividends andSpecial Deductions) of Form 1120, U.S.Corporation Income Tax Return, todetermine the dividends-receiveddeductions to include in column 3(b).

Enter on the last line of Schedule E, thetotal dividends-received deductions (after

reduction, when applicable, by thedebt-basis percentage(s)) included incolumn 8.

When a capital loss for the tax year maybe carried back or carried over to anothertax year, the amount to carry over or backis figured by using the percentagedetermined above. However, in the year towhich the amounts are carried, do notapply the debt-basis percentage todetermine the deduction for that year.

Example 1.—An exempt organizationowns a four-story building. Two floors areused for an exempt purpose and two floors



are rented (as an unrelated trade orbusiness) for $10,000. Expenses are$1,000 for depreciation and $5,000 forother expenses that relate to the entirebuilding. The average acquisitionindebtedness is $6,000, and the averageadjusted basis is $10,000. Both apply tothe entire building.

To complete Schedule E for thisexample, describe the property in column1. Enter $10,000 in column 2 (since theentire amount is for debt-financedproperty), $500 and $2,500 in columns 3(a)

and 3(b), respectively (since only one-halfof the expenses are for the debt-financedproperty), $3,000 and $5,000 in columns 4and 5, respectively (since only one-half ofthe acquisition indebtedness and theaverage adjusted basis are fordebt-financed property), 60% in column 6,$6,000 in column 7, and $1,800 in column8.

Example 2.—Assume the same facts asin Example 1, except the entire building isrented out as an unrelated trade orbusiness for $20,000. To completeSchedule E for this example, enter $20,000in column 2, $1,000 and $5,000 in columns3(a) and 3(b), respectively (since the entire

amount is for debt-financed property),$6,000 and $10,000 in columns 4 and 5(since the entire amount is fordebt-financed property), 60% in column 6,$12,000 in column 7, and $3,600 incolumn 8.

Schedule F—Interest,Annuities, Royalties, andRents From ControlledOrganizationsInterest, annuities, royalties, and rentsreceived by a controlling organization froma controlled organization are subject to tax,whether or not the activity conducted by

the controlling organization to earn theseamounts is a trade or business or isregularly carried on.

“Control” means: (a) for a stockcorporation, the ownership of stockpossessing at least 80% of the totalcombined voting power of all classes ofstock entitled to vote and at least 80% ofthe total number of shares of all otherclasses of stock of the corporation, or (b)at least 80% of the directors or trustees ofa nonstock organization are eitherrepresentatives of, or directly or indirectlycontrolled by, an exempt organization.

Controlling organizations completecolumns 2 through 7 of Schedule F as

follows:Column 2.—Enter total gross interest,annuities, royalties, and rents from eachcontrolled organization during the year.

Column 3.—Enter the total deductionsdirectly connected with the column 2income for each controlled organization.

Column 4.—If the controlled organizationis exempt from tax under section 501(a),enter in column 4(c) the percentage that isfigured by dividing the unrelated businesstaxable income of the controlledorganization by the greater of:

● The taxable income of the controlledorganization (figured as though it were notexempt from tax under section 501(a)); or

● Its unrelated business taxable income.

Both are figured without any amountpaid directly or indirectly to the controllingorganization.

Column 5.—If the controlled organizationis not exempt from tax under section501(a), enter in column 5(c) the percentagethat is figured by dividing the excesstaxable income (defined below) of the

controlled organization by the greater of:● The taxable income of the controlledorganization, or

● Its excess taxable income.

Both are figured without any amountpaid directly or indirectly to the controllingorganization.

Excess taxable income is the amount bywhich the controlled organization’s taxableincome is more than the taxable incomethat, if earned directly by the controllingorganization, would not be unrelatedbusiness taxable income.

Schedule G—Investment

Income of a Section501(c)(7), (9), or (17)OrganizationGenerally, for section 501(c)(7), (9), or (17)organizations, unrelated trade or businessincome includes all gross income fromnonmembers with certain modifications.See section 512(a)(3)(A). Report onSchedule G all income from investments insecurities and other similar investmentincome from nonmembers, including 100%of income and directly connectedexpenses from debt-financed property. Donot report nonmember income fromdebt-financed property on Schedule E.

All sections 501(c)(7), (9), and (17)organizations figure their investmentincome using Schedule G. Do not includeinterest on state and local governmentalobligations described in section 103(a).

Investment income includes all incomefrom debt- financed property whether or notthe income is subject to unrelatedbusiness income tax.

Deduct only those expenses that aredirectly connected to the net investmentincome. Allocate deductions betweenexempt activities and other activities wherenecessary. The organization may not takethe dividends-received deductions infiguring net investment income because

they are not treated as directly connectedwith the production of gross income.

Sections 501(c)(7), (9), and (17)organizations may set aside income thatwould otherwise be taxable under section512(a)(3). However, income derived froman unrelated trade or business may not beset aside and thus cannot be exemptfunction income. In addition, any incomeset aside and later expended for otherpurposes must be included in income.

Sections 501(c)(7), (9), and (17)organizations will not be taxed on incomeset aside for:

1. Religious, charitable, scientific,literary, or educational purposes, or for theprevention of cruelty to children or animals;

2. The payment of life, sick, accident, orother benefits by a section 501(c)(9) or (17)organization. The amount allowed as a setaside may not exceed a limit determinedusing section 419A. See sections 419Aand 512(a)(3)(E) for details;

3. Reasonable administration costsdirectly connected with 1 and 2 above.

Report income set aside in column 4 ofSchedule G. Amounts set aside are notdeductible under section 170 or any othersection of the Code.

The organization may elect to treatincome set aside by the date for filing thereturn, including any extensions of time, asincome set aside in the tax year for whichthe return is filed. The income set asidemust have been includible in gross incomefor that earlier tax year.

Although set aside income may beaccumulated, any accumulation that isunreasonable will be evidence that the set

aside was not for the purposes describedabove.

Net investment income set aside mustbe specifically earmarked as such, orplaced in a separate account or fund(except for an employees’ associationwhich, by the terms of its governinginstrument, must use its net investmentincome for the purposes stated in 2above).

These rules apply to a corporationdescribed in section 501(c)(2) (title holdingcorporation) whose income is payable toan organization described in section501(c)(7), (9), or (17) if it files aconsolidated return with the section

501(c)(7), (9), or (17) organization.If a section 501(c)(7), (9), or (17)

organization (or a title holding corporationdescribed above) sells property that wasused for the exempt function of the section501(c)(7), (9), or (17) organization, and buysother property used for the organization’sexempt function within a period beginning1 year before the date of the sale, andending 3 years after the date of the sale,the gain from the sale will be recognizedonly to the extent that the sales price ofthe old property is more than the cost ofthe other property. The other propertyneed not be similar in type or use to theold property. The organization must notify

the IRS of the sale by a statementattached to the return, or other writtennotice.

To compute the gain on the sale ofdepreciable property, see the instructionsfor column 5 of Schedule E to determinethe adjusted basis of the property.



Schedule I—ExploitedExempt Activity Income,Other Than AdvertisingIncomeA section 501(c)(7), (9), or (17) organizationdoes not report exploited exempt activityincome in Schedule I. Report the income inPart I, line 1a instead or the appropriateline for the particular kind of income.

Exempt organizations (other than section501(c)(7), (9), or (17) organizations) that

have gross income from an unrelated tradeor business activity that exploits an exemptactivity (other than advertising income)should complete Schedule I. SeeRegulations section 1.513-1(d)(4)(iv) for adefinition of exploited exempt activity.

An organization may take all deductionsdirectly connected with the gross incomefrom the unrelated trade or businessactivity. In addition, the organization maytake into account all deductible itemsattributable to the exploited exemptactivity, with the following limitations:

1. Reduce the deductible items of theexempt activity by the income from theactivity;

2. Limit the net amount of deductibleitems arrived at in 1 above for the exemptactivity to the net unrelated businessincome from the exploited exempt activity;

3. Exclude income and expenses of theexempt activity in figuring a loss carryoveror carryback from the unrelated trade orbusiness activity exploiting the exemptactivity; and

4. Exclude deductible items of theexempt activity in figuring unrelated tradeor business income from an activity that isnot exploiting the same exempt activity.

Therefore, the net includible exploitedexempt activity income is the unrelated

business taxable income minus the excessof the exempt activity expenses over theexempt activity income. If the income fromthe exempt activity exceeds the exemptactivity expenses, do not add that profit tothe net income from the unrelatedbusiness activity. If two or more unrelatedtrade or business activities exploit thesame exempt activity, treat those activities

as one on Schedule I. Attach a separateschedule showing the computation.

Schedule J—AdvertisingIncomeA section 501(c)(7), (9), or (17) organizationdoes not report advertising income onSchedule J. Instead, report that income inPart I, line 1a.

An exempt organization (other than asection 501(c)(7), (9), or (17) organization)that earned gross income from the sale of

advertising in an exempt organizationperiodical must complete Schedule J. Thepart of the advertising income taken intoaccount is determined as follows:

1. If direct advertising costs (expensesdirectly connected with advertising income)are more than advertising income(unrelated business income), deduct thatexcess in figuring unrelated businesstaxable income from any other unrelatedtrade or business activity carried on by theorganization.

2a. If advertising income is more thandirect advertising costs, and circulationincome (exempt activity income) equals orexceeds readership costs (exempt activity

expenses), then unrelated business taxableincome is the excess of advertising incomeover direct advertising costs.

b. If advertising income is more thandirect advertising costs, and readershipcosts are more than circulation income,then unrelated business taxable income isthe excess of total income (advertisingincome and circulation income) over totalperiodical costs (direct advertising costsand readership costs).

c. If the readership costs are more thanthe circulation income, and the netreadership costs are more than the excessof advertising income over directadvertising costs, no loss is allowable. See

Regulations section 1.512(a)–1(f)(2)(ii)(b).For allocating membership receipts to

circulation income, see Rev. Rul. 81-101,1981-1 C.B. 352.

Consolidated periodicals

If an organization publishes two or moreperiodicals, it may elect to treat the gross

income for all (but not less than all)periodicals, and deductions directlyconnected with those periodicals (includingexcess readership costs), as if theperiodicals were one to determine itsunrelated business taxable income. Thisrule only applies to periodicals publishedfor the production of income. A periodicalis considered published for the productionof income if gross advertising income ofthe periodical is at least 25% of thereadership costs, and the periodical is anactivity engaged in for profit.

Schedule K—Compensationof Officers, Directors, andTrusteesComplete columns 1 through 4, ScheduleK, for those officers, directors, andtrustees whose salaries or othercompensation are allocable to unrelatedbusiness gross income. Do not include incolumn 4 compensation that is deductedon Schedules A through J of the return.

Include on Schedule K (or elsewhere onthe return) only compensation that isdirectly attributable to the unrelated tradeor business activities of the organization. If

personnel is used both to carry on exemptactivities and to conduct unrelated trade orbusiness activities, the salaries and wagesof those individuals will be allocatedbetween the activities. For example,assume an exempt organization derivesgross income from the conduct of certainunrelated trade or business activities. Theorganization pays its president a salary of$65,000 a year. Ten percent of thepresident’s time is devoted to theunrelated business activity. On Form990-T, the organization enters $6,500(10% of $65,000) on Schedule K for thepart of the president’s salary allocable tothe unrelated trade or business activity.However, no further deduction is allowablefor the salary elsewhere on the return (e.g.,Schedule A or Schedule J).

If taxable fringe benefits are provided toyour employees, such as personal use of acar, do not deduct as salaries and wagesthe amounts you deducted for depreciationand other deductions.



Codes for Unrelated Business Activity

(If engaged in more than one unrelated business activity, select up to three codes for the principal activities. List first the largest in terms of unrelated income, then the next largest, etc.)

AGRICULTURE, FORESTRY, AND FISHING

Code

0400 Agricultural production0600 Agricultural services (except veterinarians),

forestry, fishing, hunting and trapping0740 Veterinary services

MINING

Code

1330 Crude petroleum, natural gas and natural gas

liquids1399 All other mining

CONSTRUCTION

Code

1510 General building contractors1798 All other construction

MANUFACTURING

Code

2000 Food and kindred products2100 Tobacco manufacturers2200 Textile mill products2300 Apparel and other textile products2400 Lumber and wood products, except furniture2500 Furniture and fixtures2600 Paper and allied products

Printing, publishing and allied industries

2710 Newspapers

2720 Periodicals2730 Books2750 Commercial printing (except advertising)2770 Greeting cards2799 All other printing and printing trade services2800 Chemicals and allied products2900 Petroleum refining and related industries (including

those integrated with extraction)3000 Rubber and miscellaneous plastics products3100 Leather and leather products3200 Stone, clay, glass and concrete products3300 Primary metal industries3400 Fabricated metal products, except machinery and

transportation equipment3500 Industrial and commercial machinery and

computer equipment3600 Electronic and other electrical equipment and

components, except computer equipment3700 Transportation equipment

Measuring, analyzing, and controlling instruments;photographic, medical and optical goods; watchesand clocks

3841 Surgical and medical instruments and apparatus3842 Orthopedic, prosthetic, and surgical appliances

and supplies3899 Other instruments; photographic and optical

goods; watches and clocks3900 Miscellaneous manufacturing industries

TRANSPORTATION, COMMUNICATIONS,ELECTRIC, GAS AND SANITARY SERVICES

Code

Transportation

4117 Sightseeing buses4118 Ambulance service (local)4140 Bus charter service4199 Other local and suburban transit and interurban

highway passenger transportation

4724 Travel agencies4725 Tour operators4799 All other transportation

Communication

4830 Radio and television broadcasting4898 Other communication services4900 Electric, gas and sanitary services

WHOLESALE TRADE

Code

5000 Durable goods5100 Nondurable goods

RETAIL TRADE

Code

5200 Building materials, hardware, garden supply andmobile home dealers

5300 General merchandise stores

Food stores

5410 Grocery stores5460 Bakeries5495 Health food stores5498 Other food stores5500 Automotive dealers and gasoline service stations5600 Apparel and accessory stores

Home furniture, furnishings, and equipment stores

5734 Computer and computer software stores5799 Home furniture, furnishings, and other equipment

stores

Eating and drinking places

5811 Caterers5812 Other eating places5813 Drinking places (alcoholic beverages)

Miscellaneous retail

5910 Drugstores and proprietary stores5930 Used merchandise stores5941 Sporting goods stores and bicycle shops5942 Book stores5947 Gift, novelty, and souvenir shops5961 Catalog and mail order houses5992 Florists

5994 News dealers and newstands5995 Optical goods5996 Hearing aids5997 Orthopedic and artificial limbs stores5998 Miscellaneous retail stores

FINANCE, INSURANCE AND REAL ESTATE

Code

Depository institutions

6020 Commercial banks, including bank holdingcompanies

6030 Savings institutions6060 Credit unions6098 Other depository institutions

Nondepository credit institutions

6140 Personal credit institutions, including mutualbenefit associations

6199 Other nondepository credit institutions6200 Security, commod ity brokers, dealers, exchanges

and services

Insurance

6310 Life insurance6321 Accident and health insurance6324 Hospital and medical service plans6330 Fire, marine and casualty insurance6370 Pension, health and welfare funds6398 All other insurance carriers6410 Insurance agents, brokers and services

Real estate

6512 Operators of nonresidential buildings6513 Operators of apartment buildings6515 Operators of residential mobile home sites6518 All other real estate operators (except developers)

and lessors6530 Real estate agents and managers6550 Land subdividers and developers6599 Other real estate

Holding and other investment companies, exceptbank holding companies

6730 Trusts6797 Investment clubs6798 Miscellaneous holding and investment offices

SERVICES

Code

Hotels, rooming houses, camps, and other lodgingplaces

7010 Hotels and motels7020 Rooming and boarding houses7030 Camps and recreational vehicle parks7040 Organization hotels and lodging houses, on

membership basis

Code

Personal services

7210 Laundry, cleaning and garment services7298 Miscellaneous personal services

Business services

7310 Advertising (including printing)7331 Direct mail advertising services7334 Photocopying and duplicating services7345 Building cleaning and maintenance services7352 Medical equipment rental and leasing7360 Personnel supply services7371 Computer programming services7374 Computer processing and data preparation, and

processing services7377 Computer rental and leasing7378 Computer maintenance and repair7388 Other business services7500 Automotive repair, services, and parking7600 Miscellaneous repair services7800 Motion pictures

Amusement and recreation services

7910 Dance studios, schools, and halls7920 Theatrical producers (except motion pictures),

bands, orchestras, and entertainers7933 Bowling centers7940 Commercial sports7991 Physical fitness facilities7992 Public golf courses7996 Amusement parks7997 Membership sports and recreation clubs7998 Amusement and recreation services, not

elsewhere classified

Health services

8010 Offices and clinics of doctors8020 Offices and clinics of dentists8045 Offices and clinics of other health practitioners8050 Nursing and personal care facilities8060 Hospitals8071 Medical laboratories8072 Dental laboratories8080 Home health care services8094 Specialty outpatient facilities8095 Blood banks8096 Invitro fertilization8097 Family planning clinics8098 Health and allied services, not elsewhere classified8100 Legal services

Educational services8210 Elementary and secondary schools8220 Colleges, universities, and professional schools8240 Vocational schools8298 Schools and educational services, not elsewhere

classified

Social services

8320 Individual and family social services8330 Job training and vocational rehabilitation services8351 Child day care services8361 Residential care8399 Social services, not elsewhere classified8400 Museums, art galleries and botanical and

zoological gardens

Engineering, accounting, research, management, andrelated services

8712 Architectural services8715 Engineering and surveying services8720 Accounting, auditing and bookkeeping services

8734 Testing laboratories8735 Research and development8745 Management and management consulting

services8980 Miscellaneous services

OTHER

Code

9000 Unrelated debt-financed activities other than rentalof real estate

9100 Investment activities by section 501(c)(7), (9), (17),or (20) organizations

9200 Rental of personal property9300 Passive income activities with controlled

organizations9400 Exploited exempt activities

Printed on recycled paper

us internal revenue service: i990t--1994

Documents