Draft 2018 Form 990-T Released, Providing More Clarity on Tax Reform

The IRS has released a draft copy of Form 990-T for tax year 2018 which provides more insight into how the Tax Cuts and Jobs Act of 2017 (“TCJA”) will impact exempt organizations with income from unrelated trades or businesses and with disallowed qualified transportation fringe benefits.

The most visible change to the draft Form 990-T relates to separate reporting of unrelated trades or businesses. Organizations with multiple trades or businesses must now complete the newly-created Form 990-T, Schedule M to compute taxable income from separate trades or businesses. The IRS has not yet released a draft copy of Schedule M or the 2018 Instructions to Form 990-T, so it remains to be seen exactly how the specific calculation of income for separate trades or businesses will work.

Perhaps even more impactful than the separate reporting of unrelated trades or businesses is the tax on qualified transportation fringe benefits; the draft Form 990-T addresses that provision as well. Mechanically, the amount paid for disallowed fringes is added to taxable income after consideration of separate reporting of trades or businesses, but before the application of net operating losses (NOLs) generated prior to 2018 and the $1,000 specific deduction. This confirms previous speculation that pre-2018 NOLs and the specific deduction would apply to the tax on disallowed fringes, which is good news for organizations with substantial preexisting NOLs or with very small amounts of disallowed fringes.

Other changes to the draft Form include a change to the calculation of the tax liability, reflecting the new flat 21% rate and the elimination of the Alternative Minimum Tax for corporations. Schedules A through K, for calculating income and deductions from various types of unrelated trades or businesses, remain substantially unchanged from prior years.

If you have questions about the impact of tax reform on your organization, please contact us.

J. Calvin Marks
J. Calvin Marks | Senior Manager