Following enactment of the 2017 tax reform act, the IRS has begun providing guidance on how tax-exempt organizations are to report information regarding the application of two new excise taxes, which are effective for organizations’ tax years beginning after December 31, 2017, and the increase in unrelated business taxable income for certain fringe benefits, which is applicable to amounts paid or incurred after December 31, 2017.
In July, the IRS released drafts of the 2018 Form 990 and Form 990-PF. Each return added a question regarding whether the organization is subject to the excise tax on compensation paid over $1 million under Section 4960. The draft 2018 Form 990 added a question regarding whether the organization is an educational institution subject to the excise tax on net investment income under Section 4968.
The IRS also released in August a draft 2018 Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, and accompanying instructions, which are revised to address the calculation and reporting of these two excise taxes.
Finally, the IRS provided guidance to tax-exempt organizations for the reporting of additional UBTI from certain fringe benefits provided to employees on their 2017 Forms 990-T. Note that the IRS publishes draft forms and instructions for informational purposes only; draft forms should not be relied on or filed with the IRS.
Through the release of draft forms and instructions, the IRS is providing initial guidance on new reporting requirements for tax-exempt organizations resulting from the 2017 tax reform act. However, since these are only draft forms and instructions, once the final returns and instructions are issued, organizations will need to confirm the annual disclosure and reporting requirements.
As a result of the new excise taxes, many tax-exempt organizations will have an annual requirement to file a Form 4720, beginning with their 2018 tax years. The Form 4720 is due on 15th day of the fifth month following the organization’s year end. The filing date can be extended for six months. However, to avoid interest and penalties, organizations should pay their excise tax liability by the original due date. For the excise taxes, the instructions to the Form 4720 make it clear that organizations are not required to make estimated tax payments for either excise tax.
Finally, tax-exempt organizations continue to await further guidance on various questions regarding the application and calculation of both excise taxes and the addition to UBTI for certain fringe benefits. Future guidance may impact the draft forms and instructions that were recently released.
Director, Exempt Organization Tax Services, PwC US