EY has prepared annotated versions of the following 2018 federal forms:

• Form 990, Return of Organization Exempt From Income Tax, schedules and instructions
• Form 990-T, Exempt Organization Business Income Tax Return, schedules and instructions
• Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, schedules and instructions

The annotated forms and instructions show the changes that the IRS has made for tax year 2018. These documents (which are attached) highlight and explain changes from tax year 2017. The annotated Form 990 includes a table of contents from which a reader can hyperlink to specific parts of the form and specific schedules and instructions.

Changes to the 2018 federal Form 990, schedules and instructions

The majority of changes to the 2018 Form 990, schedules and instructions consists of minor clarifications and updates. More significant changes include the following:

1. The instructions to Form 990 were updated to reflect financial statement reporting changes, such as updating the instructions for Part X, Lines 27-29 to reflect FASB ASU 2016-14, which changes the way not-for-profit organizations classify net assets. Only the instructions, not the form itself, however, have changed to reflect FASB ASU 2016-14.
2. Part V, Line 3a: The instructions were updated to direct filers to check "Yes" on Line 3a if the organization's total gross income from all its unrelated trades or businesses and any addition to UBTI attributable to expenses for a qualified transportation fringe required by Section 512 (a)(7) is $1,000 or more for the tax year.
3. Part V, Lines 15 and 16: These two new questions were added to Part V to inquire whether the filer is liable for Section 4960 excise tax on executive compensation and/or Section 4968 excise tax on net investment income of colleges and universities, both levied as part of the Tax Cuts and Jobs Act. The instructions contain a detailed worksheet for determining whether the organization should answer question 16 regarding Section 4968 "Yes" or "No."
4. Part VI, Line 1b instructions: An error in Example 1 regarding director independence was corrected to clarify that a partnership in which a board member has a greater-than-35% (rather than 5%) interest is an "interested person" for purposes of Form 990, Schedule L; if the 35% threshold is met, the director is not independent if the partnership and filing organization engaged in a transaction during the tax year that is reportable on Schedule L.
5. Part VII, Section A: The instructions were updated to include Form 1099-MISC, Box 6, employer provided medical and health care payments, as part of reportable compensation.
6. Part XII, Lines 3a & 3b: The threshold for needing to obtain an annual audit based on spending of federal award money has increased from $500,000 to $750,000.
7. Schedule A: Part II, Line 5 instructions have been updated to clarify the aggregation of contributions by related parties when calculating excess contributions over 2% in determining public support for publicly supported organizations described in Section 170(b)(1)(A)(iv) and 170(b)(1)(A)(vi).
8. Schedule B: Revenue Procedure 2018-38 reduced the compliance burden for exempt organizations (other than 501(c)(3) and 527 organizations) by no longer requiring the disclosure of donor names and addresses on Schedule B. Public charities, private foundations, and Section 527 organizations, however, must continue to disclose such information to the IRS. Organizations impacted by this change should still report on Schedule B, Part I, columns (c) and (d) the amount and type of donations that meet the Schedule B reporting thresholds but indicate "N/A" in Part I, column B for those donors' names and addresses. Organizations affected by this change must still maintain donor information in their records and must make the information available to the IRS upon request.
9. Schedule H, Part V, Section B, Line 20: This line has been expanded to require a narrative in Schedule H, Part V, Section C if any of the options in Line 20 regarding extraordinary collection actions are not checked, consistent with Schedule H, Part V, Section B, Line 20 instructions for prior years.
10. Schedule K, Part II, Lines 14 & 15: Line 14 has been updated to include bonds issued after 2017 to refund tax-exempt bonds. Line 15 has been updated to include bonds issued after 2017 to refund taxable bonds. Changes to Lines 14 and 15 reflect the Tax Cuts and Jobs Act's repeal of tax-exempt advanced refunding of tax-exempt bonds.

Implications

Few significant changes to the 2018 Form 990, schedules and instructions have been made from the 2017 versions. The changes made reflect the Tax Cut and Jobs Act and continue the IRS Tax Exempt and Government Entities Division's focus on using a data-driven approach to exam case selection. Thus, exempt organizations should continue to complete Form 990 and its associated schedules under the instructions, while incorporating changes to the instructions into their compliance procedures.

Changes to the 2018 federal Form 990-T, schedules and instructions

2018 Form 990-T includes updates to reflect statutory changes to exempt organization unrelated business taxable income (UBTI). Notable changes include the following:

1. Block H: This block formerly asked for a description of the organization's primary unrelated business activity. Now, it asks for both the number of trades or businesses and a description of the organization's first (or only) unrelated trade or business. It also notes a separate Schedule M should be completed for each additional unrelated trade or business.
2. New Part III: Part III is a new section that aggregates total UBTI from each source, instead of a computing UBTI (which is now done in Part IV). This new Part III includes Line 33, which was added to total UBTI from all unrelated trades or businesses, Line 34 for reporting qualified fringe benefit expenses (e.g., for parking provided to employees) that would be disallowed as deductions under Section 274, Line 35 for pre-2018 NOL deductions, and Line 38, which replaces Line 34 for computation of net UBTI.
3. Part II, Line 31 NOL instruction: An organization that claims the deduction for any NOL carried through tax years for which the organization was not required to file Form 990-T must show the amount of the deduction and how it was computed; the organization need not file a Form 990-T to preserve an NOL carryover. The amount of an NOL carryback or carryover is determined under Section 172. See Reg. Section 1.512(b)-1(e). Attach a statement showing the computation of the NOL deduction.
4. New Schedule M: This is a duplicate of Form 990-T, Parts I and II. If the organization has more than one unrelated trade or business, it must report its first unrelated trade or business on Parts I and II and complete a Schedule M for each additional unrelated trade or business. UBTI on Line 32 of each Schedule M is aggregated on Form 990-T, Part III, Line 33. If Line 32 of any Schedule M is less than zero, do not include it in the aggregation. NOLs incurred in tax years beginning after 2018 must now be tracked separately for each unrelated trade or business for which a Schedule M is completed.
5. Part II, Line 20, Charitable contributions instruction: If an organization has more than one unrelated trade or business, charitable contribution deductions can be allocated using any reasonable method.
6. Part II, Line 34, Amounts paid for disallowed fringes instruction: Organizations should enter the amount paid or incurred for disallowed fringes (as defined in Section 132(f)), or any parking facility used in connection with qualified parking (as defined in Section 132(f)(5)(C)), for which a deduction is not allowable by reason of Section 274. Do not include amounts directly connected with an unrelated trade or business that is regularly conducted.
7. Part IV, Line 39, Organizations Taxable as Corporations: The tax should be computed at the new 21% corporate tax rate.
8. Part IV: Line 42: The alternative minimum tax for corporations was abolished but still exists for trusts. A portion of alternative minimum tax credit carryover may be treated as refundable and reported on Line 45d. See Form 8827, Credit for Prior Year Minimum Tax — Corporations.

The annotated instructions of Form 990-T provide a further detailed analysis of the major changes to the 2018 Form 990-T instructions.

Implications

Significant changes to the 2018 Form 990-T will require additional tracking and reporting by tax-exempt organizations. Now that organizations must report UBTI separately for each trade or business, the need to track separate NOLs creates a further level of detailed analysis when completing Form 990-T. Additionally, now that qualified transportation fringe (QTF) benefits must be reported as UBTI, organizations should pay close attention to what qualifies as such a benefit and ensure they follow Notice 2018-99's interim guidance on the determination of QTF parking.

Changes to the 2018 federal Form 4720, schedules and instructions

2018 Form 990-T includes updates to reflect statutory changes to exempt organization excise taxes. Notable changes include:

1. New Schedule N, Tax on Excess Executive Compensation (Section 4960)
2. New Schedule O, Excise Tax on Net Investment Income of Private Colleges & Universities (Section 4968)
3. Additions to Form 4720 Instructions: The instructions were updated to describe the new Section 4943(g) exception from the excise tax on excess business holdings for certain independently operated businesses.

The annotated instructions of Form 4720 provide further detailed analysis of the major changes to the 2018 Form 990-T instructions.

Implications

The Tax on Excess Executive Compensation (Section 4960) provides that, effective for tax years beginning after December 31, 2017, an "applicable tax-exempt organization" is subject to a 21% excise tax on: (1) remuneration over $1 million paid to a covered employee (other than an excess parachute payment) and (2) excess parachute payments paid to a covered employee. Organizations should therefore base this computation on Form W-2 Box 1 but should understand that the amount in Box 1 may need to be adjusted or modified to capture the true amount of a covered employee's compensation — for instance, by excluding contributions to Roth IRAs and including certain vested amounts under nonqualified deferred compensation plans.

The Excise Tax on Certain Colleges & Universities (Section 4968) imposes a 1.4% excise tax for each tax year on the net investment income of an "applicable educational institution." With the implementation of this new section, organizations subject to this excise tax need to develop accounting systems that will monitor the tax basis of their investments.

Please contact your Ernst & Young LLP professional for further information.

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ATTACHMENTS

2018 Form 990 and schedules (instructions)_annotated

2018 Form 990 and schedules_annotated

Annotated 2018 4720 Form

Annotated 2018 4720 Instructions

Annotated 2018 Form 990-T Instructions

Annotated 2018 Form 990-T