21 Internal Revenue Service Department of the Treasury

1 2017 Department of the Treasury Internal Revenue Service Instructions for Schedule R. (Form 990). Related Organizations and Unrelated Partnerships Section references are to the Internal Revenue Code unless otherwise noted. Overview Relationships Part I of Schedule R (Form 990) requires An organization, including a nonprofit identifying information on any organization, a stock corporation , a Future developments. For the latest organizations that are treated for federal partnership or limited liability company, a information about developments related to tax purposes as disregarded entities of trust, and a governmental unit or other Form 990 and its instructions, such as the filing organization. Part II requires government entity, is a related legislation enacted after they were identifying information on related organization to the filing organization if it published, go to tax-exempt organizations. Part III requires stands, at any time during the tax year, in identifying information on any related one or more of the following relationships organizations that are treated for federal to the filing organization.

2 General Instructions tax purposes as partnerships. Part IV Parent an organization that controls Note. Terms in bold are defined in the requires identifying information on any (see definitions of control under Definition Glossary of the Instructions for Form 990, related organizations that are treated for of Control) the filing organization. Return of Organization Exempt From federal tax purposes as C or S Subsidiary an organization controlled Income Tax. corporations or trusts. Part V requires by the filing organization. information on transactions between the Brother/Sister an organization Purpose of Schedule organization and related organizations controlled by the same person or persons Schedule R (Form 990) is used by an (excluding disregarded entities). Part VI that control the filing organization. organization that files Form 990 to provide requires information on an unrelated Supporting/Supported an organization information on related organizations, on organization taxable as a partnership that is (or claims to be) at any time during certain transactions with related through which the organization conducted the organization's tax year (i) a organizations, and on certain unrelated more than 5% of its activities (as supporting organization of the filing partnerships through which the described in Part VI).

3 Organization within the meaning of section organization conducts significant 509(a)(3), if the filing organization is a activities. Parts I VI of Schedule R (Form 990) supported organization within the may be duplicated if additional space is meaning of section 509(f)(3), or (ii) a Who Must File needed to report additional related organizations for Parts I IV, additional supported organization, if the filing organization is a supporting organization. The chart below sets forth which transactions for Part V, or additional Sponsoring Organization of a VEBA . organizations must complete all or a part unrelated organizations for Part VI. Use as an organization that establishes or of Schedule R and attach Schedule R to many duplicate copies as needed, and maintains a section 501(c)(9) voluntary Form 990. If an organization isn't required number each page of each part. employees' beneficiary association to file Form 990 but chooses to do so, it (VEBA) during the tax year.

4 A sponsoring must file a complete return and provide all Part VII of Schedule R (Form 990) may organization of a VEBA also includes an of the information requested, including the be used to provide additional information employee organization, association, required schedules. in response to questions in Schedule R. committee, joint board of trustees, or other similar group of representatives of the parties which establish or maintain a Type of filer IF you answer Yes to .. THEN you must complete .. VEBA. All organizations Form 990, Part IV, line 33 Schedule R, Part I. Contributing Employer of a VEBA an (regarding disregarded entities) employer that makes a contribution or contributions to the VEBA during the tax All organizations Form 990, Part IV, line 34 Schedule R, Parts II, III, IV, and V, year. (regarding related organizations) line 1, as applicable. Although a VEBA must report All organizations Form 990, Part IV, line 35b Schedule R, Part V, line 2.

5 Sponsoring organizations and contributing (regarding payments from or employers as related organizations, transactions with controlled sponsoring organizations and contributing entities) employers shouldn't report a VEBA as a related organization, unless the VEBA is Section 501(c)(3) organization Form 990, Part IV, line 36 Schedule R, Part V, line 2. related to the sponsoring organization or (regarding transfers to exempt contributing employer in some other noncharitable related capacity listed above. organizations). VEBA contributing employers and All organizations Form 990, Part IV, line 37 Schedule R, Part VI. sponsoring organizations. If the filing (regarding conduct of activity organization is a section 501(c)(9) VEBA, through unrelated partnership). it must list its sponsoring organizations and contributing employers on Schedule R. Nov 03, 2017 Cat. No. 51519M. (Form 990). The filing organization must trustees, directors, officers, employees, nor Organization B is a parent of report all information on its sponsoring or agents of the parent.

6 Organization C or Organization D, organizations in Parts II through IV, as Organizations C and D are controlled by applicable. However, the filing Control of a stock corporation . One the same persons, and therefore are organization is only required to list the or more persons (whether individuals or brother/sister related organizations with name of its contributing employers in Parts organizations) control a stock corporation respect to each other. II through IV, and isn't required to report if they own more than 50% of the stock (by voting power or value) of the corporation . Example 2. There are 1,000. any additional information in those parts. individuals who are members of both The filing organization must also report its Control of a partnership or limited Organizations E and F. The members related transactions with sponsoring liability company. One or more persons elect the board members of both organizations and contributing employers control a partnership if they own more than Organizations E and F.

7 Organizations E. in Part V, line 1, and, if applicable, line 2. 50% of the profits interests or capital and F are brother/sister related Disregarded entity exception. interests in the partnership (including a organizations with respect to each other. Disregarded entities are treated as limited liability company treated as a partnership or disregarded entity for Indirect control. Control can be related organizations for purposes of indirect. For example, if the filing reporting on Schedule R (Form 990), Part federal tax purposes, regardless of the designation under state law of the organization controls Entity A, which in I, but not for purposes of reporting turn controls (under the definition of transactions with related organizations in ownership interests as stock, membership interests, or otherwise). A person also control in these instructions) Entity B, the Part V, or otherwise on Form 990. A filing organization will be treated as disregarded entity of an organization controls a partnership if the person is a managing partner or managing member of controlling Entity B.

8 To determine indirect related to the filing organization is control through constructive ownership of generally treated as part of the related a partnership or limited liability company which has three or fewer managing a corporation , rules under section 318. organization and not as a separate entity. apply. Similar principles apply for See Appendix F in the Instructions for partners or managing members (regardless of which partner or member purposes of determining constructive Form 990. ownership of another entity (a partnership has the most actual control), or if the Bank trustee exception. If the filing person is a general partner in a limited or trust). If an entity (X) controls an entity organization is a trust that has a bank or partnership which has three or fewer treated as a partnership by being one of financial institution trustee that is also the general partners (regardless of which three or fewer partners or members, then trustee of another trust, the filing partner has the most actual control).

9 For an organization that controls X also organization isn't required to report the this purpose, a managing partner is a controls the partnership. other trust as a brother/sister related partner designated as such under the Example 1. B, an exempt organization on the ground of common partnership agreement, or regularly organization, wholly owns (by voting control by the bank or financial institution engaged in the management of the power ) C, a taxable corporation . C holds a trustee. partnership. 51% profits interest in D, a partnership. Under the principles of section 318, B is Definition of Control Control of a trust with beneficial interests. One or more persons control a deemed to own 51% of D (100% of C's 51% interest in D). Thus, B controls both C. Related organizations. For purposes of trust if they own more than 50% of the and D, which are therefore both related determining related organizations: beneficial interests in the trust.

10 A person's organizations with respect to B. beneficial interest in a trust shall be Control of a nonprofit organization Example 2. X, an exempt determined in proportion to that person's (or other organization without owners organization, owns 80% (by value) of Y, a actuarial interest in the trust as of the end or persons having beneficial interests, taxable corporation . Y holds a 60% profits of the tax year. whether the organization is taxable or interest as a limited partner of Z, a limited tax-exempt). One or more persons In some situations a named beneficiary may have no determinable interest in the partnership. Under the principles of (whether individuals or organizations) section 318, X is deemed to own 48% of Z. control a nonprofit organization if they trust. For instance, if Trust A allows the trustee to distribute income and principal (80% of Y's 60% interest in Z). Thus, X. have the power to remove and replace (or controls Y.)