Part VII. Investment Income of a Section 501(c)(7), (9), or (17) Organization

Generally, for section 501(c)(7), (9), or (17) organizations, unrelated trade or business income includes all gross income from nonmembers with certain modifications. See section 512(a)(3)(A). Report on Schedule A (Form 990-T), Part VII, all income from investments in securities and other similar investment income from nonmembers, including 100% of income and directly connected expenses from debt-financed property. Don’t report nonmember income from debt-financed property on Schedule A (Form 990-T), Part V.

All section 501(c)(7), (9), and (17) organizations figure their investment income using Schedule A (Form 990-T), Part VII. Don’t include interest on state and local governmental obligations described in section 103(a).

Investment income includes all income from debt-financed property.

If a section 501(c)(7), (9), or (17) organization (or a title holding corporation, described earlier) sells property that was used for the exempt function of the section 501(c)(7), (9), or (17) organization and buys other property used for the organization’s exempt function within a period beginning 1 year before the date of the sale, and ending 3 years after the date of the sale, the gain from the sale will be recognized only to the extent that the sales price of the old property is more than the cost of the other property. The other property need not be similar in type or use to the old property. The organization must notify the IRS of the sale by a statement attached to the return, or other written notice.

32 Instructions for Form 990-T (2025)

To compute the gain on the sale of depreciable property, see the instructions for Schedule A (Form 990-T), Part V, line 5, to determine the adjusted basis of the property.

Column 3. Deduct only those expenses that are directly connected to the net investment income. Allocate deductions between exempt activities and other activities where necessary. The organization may not take the dividends-received deductions in figuring net investment income because they aren’t treated as directly connected with the production of gross income.

Column 4. Section 501(c)(7), (9), and (17) organizations may set aside income that would otherwise be taxable under section 512(a)(3). However, income derived from an unrelated trade or business may not be set aside and thus can’t be exempt function income. In addition, any income set aside and later used for other purposes must be included in income.

Section 501(c)(7), (9), and (17) organizations won’t be taxed on income set aside for:

1. Religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals (and reasonable administration costs directly connected to such purposes); or

2. The payment of life, sickness, accident, or other benefits (and reasonable administration costs directly connected to such benefits) by a section 501(c)(9) or (17) organization. The amount allowed as a set-aside may not exceed a limit determined using section 512(a)(3)(E). See sections 512(a)(3)(E) and 419A for details.

Report income set aside on Schedule A (Form 990-T), Part VII, column 4. Attach a statement listing:

1. The amount set aside for charitable purposes;

2. The amount set aside for reasonable administration costs directly connected with such amount;

3. The amount set aside for payment of life, sickness, accident, or other benefit; and

4. The amount set aside for reasonable administration costs directly connected with the payment of such benefits.

Amounts set aside aren’t deductible under section 170 or any other section of the Code.

The organization may elect to treat income set aside by the date for filing the return, including any extension of time, as income set aside in the tax year for which the return is filed. The income set aside must have been includible in gross income for that earlier tax year.

Although set-aside income may be accumulated, any accumulation that is unreasonable will be evidence that the set-aside wasn’t for the purposes previously mentioned.

Net investment income set aside must be specifically earmarked as such, or placed in a separate account or fund (except for a section 501(c)(9) or (17) organization which, by the terms of its governing instrument, must use its net investment income for the payment of life, sickness,

accident, or other benefits, and reasonable administration costs).

These rules apply to a corporation described in section 501(c)(2) (title holding corporation) whose income is payable to an organization described in section 501(c)(7), (9), or (17) if it files a consolidated return with the section 501(c)(7), (9), or (17) organization.