{{item.videoDuration}}
{{item.title}}
{{item.text}}
{{item.videoDuration}}
{{item.title}}
{{item.text}}
IRS updates exempt organization Forms 990T, 4720, and 1024
February 2022
In brief
The IRS has revised 2021 tax forms applicable to tax-exempt organizations:
- Form 990-T, Exempt Organization Business Income Tax Return; and
- Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code.
The IRS also revised Form 1024, Application for Recognition of Exemption Under Section 501(a) or Section 521 of the Internal Revenue Code.
Action item: The IRS continues to revise forms and filing procedures in response to legislative changes. The IRS also mandates electronic filing for most exempt organization forms and schedules. Organizations need to be aware of these changes to ensure compliance with IRS requirements.
In detail
Form 990-T
Similar to requirements on the 2020 Form 990-T, the 2021 Form 990-T requires organizations to complete a Schedule A for each separate unrelated trade or business as determined under Section 512(a)(6). However, the 2021 Form 990-T contains a few changes and additions that may be significant to some organizations, including:
- The 2021 Form 990-T instructions include a reminder of the temporary allowance of a 100% deduction for business meals instead of the 50% deduction normally allowed. The Taxpayer Certainty and Disaster Relief Act of 2020 amended Section 274(n)(2) to allow a deduction for 100% of certain business meal expenses from restaurants paid or incurred beginning January 1, 2021, through December 31, 2022. The temporary allowance was intended to help stimulate business for the restaurant industry, which was adversely affected by the pandemic. Expenses related to meals that were not provided by restaurants are not eligible for the enhanced deduction.
- An organization must report in Part IV, Line 4 of the 2021 Form 990-T the amount of its net operating loss (NOL) carryover from tax years prior to 2018 (i.e., the total of all pre-2018 NOLs not used to offset income in a tax year prior to 2021). The deduction for pre-2018 NOL is entered on Part I, Line 6 of the 2021 Form 990-T. The full amount of NOL carried to tax year 2021 should be entered in Part IV, Line 4, and should not be reduced by any NOL deduction reported in Part I, Line 6.
- The IRS added Part IV, Line 5 to the 2021 Form 990-T for organizations to enter the amount of each post-2017 NOL carried forward to the tax year for each trade or business that is siloed as required by Section 512(a)(6). The instructions provide that the NOL for each separate trade or business conducted after 2017 should be reported even if a Schedule A for any specific trade or business is not included with the 2021 return. As with pre-2018 NOLs reported in Part VI, Line 4, the full amount of the available NOL for each separate trade or business carried forward to tax year 2021 should be reported, even if some of it is used to offset income for the year. Deductions for post-2017 siloed NOLs continue to be reported on the appropriate Schedule A, Part II, Line 17.
Observation: The 2021 Form 990-T must be electronically filed. This mandatory electronic filing requirement became effective in February 2021.
Form 4720
Form 4720 is used to report and pay a variety of excise taxes applicable to private foundations and certain other tax-exempt organizations. In some instances, persons, such as disqualified persons and foundation managers, may be subject to excise taxes and must separately file Form 4720. Changes to the 2021 Form 4720 include:
- Item B of the header to Form 4720 is revised for use by any entity or person (other than the organization) required to file Form 4720 to report and pay an excise tax. This entity or person is required to indicate whether it is required to file Form 4720 with respect to more than one organization. If “yes,” a list showing the name and employer identification number (EIN) for each organization should be attached. The information entered in Item B is intended to allow IRS systems to accept and process multiple Form 4720 filings under the same EIN.
- Item B of the header previously had been used to ask whether any corrective action had been taken on a taxable event that resulted in Chapter 42 excise taxes. On the 2021 Form 4720, Schedules A,C, D, E, F, and I, have been revised so that each schedule separately requests information about corrective actions taken. For each transaction to which an initial tax applies under Sections 4941, 4943, 4944, 4945, 4955, or 4958 where the organization or any other entity or person required to file Form 4720 to report one or more such transactions, the return now must indicate whether a correction has been made on the schedule where each transaction is reported.
Observation: As a reminder, the Form 4720 now must be filed electronically by private foundations and can be filed electronically by all organizations. This change was effective with the 2020 Form 4720.
Form 1024
Form 1024 is used by most types of organizations to apply for recognition of tax exemption. Organizations described in Sections 501(c)(3) and 501(c)(4) use Forms 1023 and 1024-A, respectively.
Organizations requesting determinations under Subsections 501(c)(11), (14), (16), (18), (21), (22), (23), (26), (27), (28), (29) and Section 501(d) previously submitted letter applications, but now are required to submit Form 1024. Organizations requesting determinations under Section 521 may submit Form 1024 instead of Form 1028, Application for Recognition of Exemption Under Section 521 of the Internal Revenue Code.
Observation: As of January 3, 2022, Form 1024 must be submitted electronically through Pay.gov. The IRS will provide a 90-day grace period during which it will continue to accept paper versions of Form 1024 (and letter applications from organizations previously required to submit in that format).
{{filterContent.facetedTitle}}
{{contentList.loadingText}}
{{contentList.loadingText}}
Follow us
