Part I. Unrelated Trade or Business — 2025 Inst 990-T (PDF)

Gross Receipts or Sales

Line 1a. Enter the gross receipts from an unrelated trade or business regularly conducted that involves the sale of goods or performance of services.

Tip: A section 501(c)(7) social club would report its restaurant and bar receipts from nonmembers on Schedule A (Form 990-T), Part I, line 1a, but would report its investment income on Schedule A (Form 990-T), Part I, line 9, and on Schedule A (Form 990-T), Part VII.

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Advance payments. In general, advance payments are reported in the year of receipt. To report income from long-term contracts, see section 460. For rules that allow a limited deferral of advance payments beyond the current tax year, see section 451(c). Also, see Regulations sections 1.451-8(c), (d), and (e). For applicability dates, see Regulations section 1.451-8(h). For information on adopting or changing to a permissible method for reporting advance payments for services and certain goods by an accrual method corporation, see the Instructions for Form 3115. Also, see Rev. Proc. 2021-34.

Installment sales. Generally, the installment method cannot be used for dealer dispositions of property. A dealer disposition is:

Any disposition of personal property by a person who regularly sells or otherwise disposes of personal property of the same type on the installment plan, or
Any disposition of real property held for sale to customers in the ordinary course of the taxpayer’s trade or business.

These restrictions on using the installment method don’t apply to dispositions of property used or produced in a farming business or sales of time-shares and residential lots for which the organization elects to pay interest under section 453(l)(3).

For sales of time-shares and residential lots reported under the installment method, the organization’s income tax is increased by the interest payable under section 453(l)(3). Enter on Schedule A (Form 990-T), Part I, line 1a and line 3, the gross profit on collections from installment sales for any of the following.

Dealer dispositions of property before March 1, 1986.
Dispositions of property used or produced in the trade or business of farming.
Certain dispositions of time-shares and residential lots reported under the installment method.

Attach Form 6252 to show information about each installment sale.

Nonaccrual experience method. Accrual method organizations aren’t required to accrue certain amounts to be received from the performance of services that, on the basis of their experience, won’t be collected, if:

The services are in the field of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or
The organization’s average annual gross receipts for the 3 prior tax years doesn’t exceed $31 million.

This provision doesn’t apply to any amount if interest is required to be paid on the amount or if there is any penalty for failure to timely pay the amount. See Regulations section 1.448-3. Organizations that qualify to use the nonaccrual experience method should attach a statement showing total gross receipts, amounts not accrued as a result of the application of section 448(d)(5), and the net amount accrued. Enter the net amount on Schedule A (Form 990-T), Part I, line 1a.

Gain or loss on disposition of certain brownfield property. Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property (as

defined in section 512(b)(19)(C)), which was acquired by the organization after 2004, is excluded from unrelated business taxable income and is excepted from the debt-financed rules for such property. See sections 512(b) (19) and 514(b)(1)(E).

Capital Gain Net Income

Line 4a. Generally, organizations required to file Form 990-T (except organizations described in sections 501(c) (7), (9), and (17)) aren’t taxed on the net gains from the sale, exchange, or other disposition of property. However, net capital gains on debt-financed property, capital gains on cutting timber, and ordinary gains on sections 1245, 1250, 1252, 1254, and 1255 property are taxed. See Form 4797, Sales of Business Property, and its instructions for additional information.

Also, any capital gain or loss passed through from an S corporation or any gain or loss on the disposition of S corporation stock by a qualified tax-exempt organization (see S Corporations, later) is taxed as a capital gain or loss and reported on Schedule A (Form 990-T), Part I, line 4.

Capital gains and losses should be reported by a trust on Schedule D (Form 1041), Capital Gains and Losses, and by a corporation on Schedule D (Form 1120), Capital Gains and Losses (and Form 8949, Sale and Other Dispositions of Capital Assets). Schedule D of Form 1041 or Form 1120 (and Form 8949, if applicable) must be attached to Form 990-T.

If you deferred a capital gain into a QOF, you must attach Schedule D, Form 8949, and Form 8997 to your Form 990-T. You will need to annually file Form 8997 until you dispose of the investment. See the Instructions for Form 8997.

An organization that transfers securities it owns for the contractual obligation of the borrower to return identical securities recognizes no gain or loss on that exchange or on the subsequent receipt of identical securities in satisfaction of the contractual obligation. To qualify for this treatment, the organization must lend the securities under an agreement that requires:

The return of identical securities;
The payment of amounts equivalent to the interest, dividends, and other distributions that the owner of the securities would normally receive; and
The risk of loss or opportunity for gain not to be lessened.

See sections 512(a)(5) and 1058(b) for details.

Debt-financed property disposition. The amount of gain or loss to be reported on the sale, exchange, or other disposition of debt-financed property is the same percentage as the highest acquisition indebtedness for the property for the 12-month period before the date of disposition is to the average adjusted basis of the property. The percentage may not be more than 100%. See the instructions for Schedule A (Form 990-T), Part V, Line 5 , later, to determine adjusted basis and average adjusted basis.

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If debt-financed property is depreciable or depletable property, the provisions of sections 1245, 1250, 1252, 1254, and 1255 must be considered first.

Example. On January 1, 2024, an exempt educational corporation, using $288,000 of borrowed funds, purchased an office building for $608,000. The only adjustment to basis was $29,902 for depreciation (straight line method under MACRS over the 39-year recovery period for nonresidential real property). The corporation (section 501(c)(3) organization) sold the building on December 31, 2025, for $640,000. At the date of sale, the adjusted basis of the building was $578,098 ($608,000 − $29,902) and the indebtedness remained at $288,000. The adjusted basis of the property on the first day of the year of disposition was $593,037. The average adjusted basis is $585,568 (($593,037 + $578,098) ÷ 2). The debt/ basis percentage is 49% ($288,000 ÷ $585,568).

The taxable gain is $30,332 (49% × ($640,000 − $578,098)). This is a long-term capital gain. A corporation should enter the gain on Schedule D (Form 1120), Part II, line 8. A trust should enter the gain on Schedule D (Form 1041), Part II, line 8, if applicable. In either scenario (a corporation or a trust), the educational organization must attach a statement to Form 990-T, in addition to the Schedule D, showing how the gain was figured along the lines described in this example, if the details weren’t provided with the Schedule D.

several years (generally a period of 3 years) regains exemption, unless the principal purpose of the transactions is to avoid the tax on the change in status.

In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. If the tax-exempt parent later disposes of the property, then any gain (not in excess of the amount not recognized) is included in the parent’s UBTI. If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss with respect to the assets not so used. Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business.

Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan having a principal purpose of recognizing losses.

Disposition of property received from taxable sub- sidiary and used in unrelated business. A taxable 80%-owned subsidiary corporation of one or more tax-exempt entities is generally subject to tax on a distribution in liquidation of its assets to its exempt parent (or parents). See section 337. The assets are treated as if sold at FMV.

Tax-exempt entities for this purpose include:

Organizations described in sections 501(a), 529, 529A, and 115;
Charitable remainder annuity trusts or unitrusts;
U.S. (including states) and foreign governments;
Indian tribal governments and certain corporations;
International organizations; and
Similar non-taxable organizations.

A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at FMV. However, such a transfer isn’t taxable if it qualifies as a like-kind exchange under section 1031 or an involuntary conversion under section 1033. In such a case, the built-in appreciation is preserved in the replacement property received in the transaction. A “taxable corporation” is any corporation that isn’t a tax-exempt entity as defined above, including an S corporation.

A corporation that changes status from taxable to tax-exempt is generally treated as if it transferred all of its assets to a tax-exempt entity immediately before the change in status (thus subjecting it to the tax on a deemed sale for FMV). This rule doesn’t apply where the taxable corporation becomes exempt within 3 years of formation (within 7 years of formation for section 501(c)(7) organizations), or had previously been exempt and within

Net Gain or (Loss)

Line 4b. Show gains and losses on other than capital assets on Form 4797. Enter on this line the net gain or (loss) from Form 4797, Part II, line 17.

An exempt organization using Form 4797 to report ordinary gain on sections 1245, 1250, 1252, 1254, and 1255 property will include only depreciation, amortization, or depletion allowed or allowable in figuring UBTI or taxable income of the organization (or a predecessor organization) for a period when it was not exempt.

Capital Loss Deduction for Trusts

Line 4c. If a trust has a net capital loss, it is subject to the limitations of Schedule D (Form 1041). Enter on this line the loss figured on Schedule D (Form 1041).

Income or (Loss) From a Partnership or an S Corporation

Line 5. See Regulations section 1.512(a)-6 for rules permitting the aggregation of income (and directly connected deductions) of certain partnership interests.

Also, for trusts and certain corporations, there are limitations on income and losses (including from a partnership or an S corporation) under section 469 (the PAL and credit limitation rules) and section 465 (at-risk limitations). For more information on these rules, see the discussion of the application of the passive activity loss and at-risk limitations to affected tax-exempt organizations in the introductory instructions under Part I. Unrelated Trade or Business Income, earlier.

Partnerships

If the organization is a partner in a partnership conducting an unrelated trade or business, enter the organization’s share (whether or not distributed) of the partnership’s income or loss from the unrelated trade or business. The organization is required to notify the partnership of its tax-exempt status. Figure the gross income and deductions of the partnership in the same way you figure unrelated trade or business income the organization earns directly.

Attach a statement to this return showing the organization’s share of the partnership’s gross income

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from the unrelated trade or business, and its share of the partnership deductions directly connected with the unrelated gross income.

S Corporations

Qualified tax-exempt organizations can be shareholders in an S corporation without the S corporation losing its status as an S corporation. Qualified tax-exempt organizations that hold stock in an S corporation treat their stock interest as an interest in an unrelated trade or business. All items of income, loss, or deduction that the organization receives as a shareholder of the S corporation are taken into account in Schedule A (Form 990-T), Part I, line 5, in figuring UBTI and not reported on another line of Schedule A (Form 990-T) that otherwise would apply, except capital gains and losses, which are reported on Schedule A (Form 990-T), Part I, line 4. Report on Schedule A (Form 990-T), Part I, line 4, any gain or loss on the disposition of S corporation stock.

Qualified tax-exempts. A qualified tax-exempt is an organization that is described in section 401(a) (qualified stock bonus, pension, and profit-sharing plans) or 501(c) (3) and exempt from tax under section 501(a).

Exception. Employee stock ownership plans (ESOPs) don’t follow these S corporation rules if the S corporation stock is an employer security, as defined in section 409(l).

Attach a statement to this return showing the qualified tax-exempt’s share of all items of income, loss, or deduction. Combine the income, loss, and deductions (except for the capital gains and losses) on the statement. If you hold stock in more than one S corporation, total the combined amounts. Show capital gains and losses separately and include them on Schedule A (Form 990-T), Part I, line 4a.

Rent Income

Line 6. Enter the amount computed on Schedule A (Form 990-T), Part IV, line 3, on Schedule A (Form 990-T), Part I, line 6, column (A).

Enter the amount computed on Schedule A (Form 990-T), Part IV, line 5, on Schedule A (Form 990-T), Part I, line 6, column (B).

Unrelated Debt-Financed Income

Line 7. Enter the amount computed on Schedule A (Form 990-T), Part V, line 8, on Schedule A (Form 990-T), Part I, line 7, column (A).

Enter the amount computed on Schedule A (Form 990-T), Part V, line 10, on Schedule A (Form 990-T), Part I, line 7, column (B).

Interest, Annuities, Royalties, and Rents From a Controlled Organization

Line 8. Enter the sum of columns 5 and 10 from Schedule A (Form 990-T), Part VI on Schedule A (Form 990-T), Part I, line 8, column (A). Enter the sum of columns 6 and 11 from Schedule A (Form 990-T), Part VI on Schedule A (Form 990-T), Part I, line 8, column (B).

Investment Income of Section 501(c)(7), (9), or (17) Organizations

Line 9. Enter the sum of amounts from Schedule A (Form 990-T), Part VII, column 2, on Schedule A (Form 990-T), Part I, line 9, column (A).

Enter the sum of amounts in Schedule A (Form 990-T), Part VII, column 5, on Schedule A (Form 990-T), Part I, line 9, column (B).

Exploited Exempt Activity Income, Other Than Advertising Income

Line 10. Enter the amount computed on Schedule A (Form 990-T), Part VIII, line 2, on Schedule A (Form 990-T), Part I, line 10, column (A). Enter the amount computed on Schedule A (Form 990-T), Part VIII, line 3, on Schedule A (Form 990-T), Part I, line 10, column (B).

Advertising Income

Line 11. Enter the amount computed on Schedule A (Form 990-T), Part IX, line 2a, on Schedule A (Form 990-T), Part I, line 11, column (A). Enter the amount computed on Schedule A (Form 990-T), Part IX, line 3a, on Schedule A (Form 990-T), Part I, line 11, column (B).

Other Income

Line 12. Enter on Schedule A (Form 990-T), Part I, line 12, any item of unrelated business income from a particular trade or business that isn’t reportable elsewhere on the return. Attach a statement describing the sources of the other income and their amounts. Such amounts may include:

Recoveries of bad debts deducted in earlier years under the specific charge-off method;
The amount from Form 8864, Biodiesel, Renewable Diesel, or Sustainable Aviation Fuels Credit (if applicable); and
Proceeds received from employer-owned life insurance contracts issued after August 17, 2006 (complete and attach Form 8925).

Organizations described in section 501(c)(19). Enter the net income from an insurance business that was not properly set aside. These organizations may set aside income from payments received for life, sickness, accident, or health insurance for members of the organization or their dependents.

To provide for the payment of insurance benefits.
For a purpose specified in section 170(c)(4) (religious, charitable, scientific, literary, educational, etc.).
For administrative costs directly connected with benefits described in (1) and (2) above.

Amounts set aside and used for purposes other than those in (1), (2), or (3) above must be included in UBTI for the tax year if they were previously excluded from taxable income.

Any amount spent for a purpose described in section 170(c)(4) is first considered paid from funds earned by the

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organization from insurance activities if the income isn’t used for the insurance activities.

Expenditures for lobbying aren’t considered section 170(c)(4) expenses. Income from property financed with qualified 501(c)(3) bonds. If any part of the property is used in a trade or business of any person other than a section 501(c)(3) organization or a governmental unit, and such use isn’t consistent with the requirement for qualified 501(c)(3) bonds under section 145, the section 501(c)(3) organization is considered to have received unrelated business income in the amount of the greater of the actual rental income or the fair rental value of the property for the period it is used. No deduction is allowed for interest on the private activity bond. Report the greater of the actual rent or the fair rental value on Schedule A (Form 990-T), Part I, line 12. Report allowable deductions on Schedule A (Form 990-T), Part II. See sections 150(b)(3) and (c).

PFIC shareholders. If the organization is a direct or indirect shareholder of a PFIC within the meaning of section 1297, it may have income tax consequences under section 1291 upon the disposition of the PFIC stock or on the receipt of an excess distribution from the PFIC, described in section 1291(a). The organization may have current income under section 1293 if the PFIC is a QEF with respect to the organization. The organization may also have current income under section 1296 if it makes a section 1296 mark-to-market election with respect to the PFIC stock.

Include on Schedule A (Form 990-T), Part I, line 12, the portion of an excess distribution (or gain treated as an excess distribution), section 1293 inclusion, or section 1296 inclusion that is taxable as UBTI. See Form 8621. See the Instructions for Form 990-T, Part II, line 4, for reporting the deferred tax amount that may be owed by the organization with respect to an excess distribution (or gain treated as an excess distribution).

Total Unrelated Trade or Business Income

Line 13. Use the amount from Schedule A (Form 990-T), Part I, line 13, column (C), in the computation of UBTI in Schedule A (Form 990-T), Part II, line 16.