Schedule R is the final schedule you may need to fill out with your Form 990 and is used to report related organizations, transactions with related organizations, and unrelated organizations that are partnerships through which you conduct at least 5% of your activities, measured by your total assets or gross revenue. Schedule R is split into 6 parts, each listing specific types of related organizations.
- Part I: Disregarded Entities
- Part II: Related Tax-Exempt Organizations
- Part III: Related Organizations Taxable as a Partnership
- Part IV: Related Organizations Taxable as a Corporation or Trust
- Part V: Transactions with Related Organizations
- Part VI: Unrelated Organizations Taxable as a Partnership (report any partnerships through which you conduct at least 5% of your activities, measured by your total assets or gross revenue)
An organization can be related to yours by a few different relationships – a parent organization is one that controls yours, a subsidiary organization is controlled by you, a brother/sister organization is controlled by the same person or persons as you, as well as being a supporting organization under section 509(a)(3) or a supported organization under section 509(f)(3). To determine who an organization is controlled by, consider these criteria. In all cases, a “person” can be an individual or an organization.
- Nonprofit organizations are controlled by one or more persons who have the power to remove and replace a majority of an organization’s directors or trustees, or a majority of the members who have the power to elect a majority of the directors or trustees. This also includes the power to appoint, elect, approve, or veto the appointment or election of such directors, trustees or members, if this power includes continuing power to appoint, elect, approve, or veto these positions periodically or in the event of vacancies. This power can be exercised by a parent organization through one or more of its officers, directors, trustees, or agents acting in their capacity as such. A parent organization also controls a subsidiary if a majority of the subsidiary’s directors or trustees are also trustees, directors, officers, employees, or agents of the parent.
- Stock corporations are controlled by one or more persons who own more than 50% of the stock of the corporation when measured by voting power or value.
- Partnerships, and LLCs taxed as partnerships, are controlled by one or more persons owning more than 50% of the profits interests or capital interests in the partnership. Control is also held by a person who is a managing partner or managing member of the partnership or LLC that has 3 or fewer managing partners or managing members, or a general partner in a limited partnership that has 3 or fewer general partners. In either of the latter 2 cases, it doesn’t matter which partner has the most actual control. Managing partners are designated as such under the partnership agreement, or regularly engaged in the management of the partnership.
- Trusts with beneficial interest are controlled by one or more persons owning more than 50% of the beneficial interests in the trust, based on each person’s actuarial interest in the trust as of the end of the tax year.
Once you’ve identified your related organizations, you’ll need to cull together the data to report, depending on what type of legal entity the related organization is. Each part of Schedule R requires some of the same information, but also some details specific to the type of related organization.
- Name, mailing address, EIN
- Primary activity of the related organization
- Legal domicile (state or foreign country)
- Direct controlling entity – this is the entity that directly controls the related organization. If the related organization is not a disregarded entity, put N/A if it’s not directly controlled by another entity.
- Total income (for disregarded entities) – this is the amount of revenue you reported in Form 990, Part VIII, line 12, column (A) that’s attributable to the disregarded entity
- End of year assets (for disregarded entities) – this is the amount of your assets, reported in Form 990, Part X, line 16, column (B), attributable to the disregarded entity
- Exempt Code section (for tax-exempt organizations). Enter the section of the Internal Revenue Code under which the organization is tax-exempt. Leave this blank if the related organization is a governmental unit, instrumentality, or foreign government that doesn’t have a 501(c) determination letter.
- Public charity status (for tax-exempt organizations under Section 501(c)(3)). Use the line number the organization checked in Schedule A, Part I. For private foundations, put PF.
- Whether or not it’s a controlled entity under Section 512(b)(13) (for tax-exempt organizations, corporations, and trusts)
- Predominant income – related, unrelated or excluded from tax under sections 512-514 (for organizations taxable as a partnership). Of these 3 types of income, enter the type that is more prevalent than the others, based on the classification you used in Form 990, Part VIII, columns (B), (C), and (D).
- Share of total income (for organizations taxable as a partnership, corporations, and trusts). Enter the dollar amount of your share of the related organization’s income for the related organization’s tax year ending during or with the fiscal year you’re reporting on your 990. For partnerships and S corporations, use the total amount reported on the Schedule K-1 you received from the partnership. For partnerships and LLCs, it will be based on your profit interest in the related organization’s partnership agreement or LLC agreement. If the related organization is a C corporation, it’s the value of shares of all classes of stock that you own, divided by the total value of all shares outstanding.
- Share of total end-of-year assets (for organizations taxable as a partnership, corporations, and trusts). Enter the dollar amount of your share of the related organization’s total assets as of the end of its tax year that ends during or with the fiscal year you’re reporting on your 990. For partnerships, this will be based on the capital interest your organization has in the partnership, specified in the partnership or LLC agreement and will be reported on the Schedule K-1 you received from the partnership (add your ending capital account to your share of the partnership’s liabilities). For C and S corporations, multiply the corporation’s end-of-year assets by your share of total income reported in the bullet point above.
- Whether or not there are disproportionate allocations (for organizations taxable as a partnership). Check yes if the interest you have as a partner for any item of income, gain, loss, deduction, credit, or right to distributions was disproportionate to your investment in the partnership at any point during the fiscal year you’re reporting on your 990.
- Code V – UBI amount in box 20 of Schedule K-1 (for organizations taxable as a partnership). Enter the dollar amount listed as the Code V amount in box 20 for the partnership’s tax year that ended during or with the fiscal year you’re reporting on your 990. This represents unrelated business taxable income.
- If you’ve been a general partner of a limited partnership, or managing partner or managing member of a general partnership or LLC at any point during the year for which you’re filing your 990 (for organizations taxable as a partnership).
- Your percentage ownership (for organizations taxable as a partnership, corporations, and trusts). For partnerships, this is your percentage interest in the profits or capital of the related partnership, whichever is greater. For C corporations, use your stock ownership in the corporation, based on total combined voting power or total value of all outstanding shares, whichever is greater. For S corporations, use the percentage reported on the Schedule K-1 for the year ending during or with the fiscal year you’re reporting on your 990.
- Type of corporation or trust (for corporations and trusts). Put C for a C corporation, S for an S corporation, or T for a trust.
Schedule R can be found here, and more detailed instructions for filling it out are provided here. I will cover Part V and Part VI in later posts.