Form 990-T Fiscal Year 2017 Corporate Filers Blended Tax Rate

Just in case you hadn’t already heard enough about the 2017 Tax Cuts and Jobs Act (TCJA), here is some beneficial information for corporations calculating their blended tax rates.

As part of the TCJA, changes were made to federal income tax rates for organizations filing Form 990-T. If you are unfamiliar with Form 990-T, it is the annual tax return filed by exempt organizations if they have Unrelated Business Taxable Income (UBTI).  The new tax law provisions introduced a flat 21% corporate tax rate for tax years beginning after December 31, 2017, but what does this mean for tax filers with other fiscal year-ended dates?

According to the TCJA, corporations with fiscal years beginning in 2017 and ending in 2018 must calculate their tax by using a blended tax rate. For example, an organization that is year ended June 30, 2018 calculates its tax liability by applying the pre-2018 rate and the post-2017 rate to the organization’s taxable income for the entire year. The organization would then prorate those amounts based on the number of days in each period relative to the total days in the tax year. The blended rate may be greater or less than the 21% corporate tax rate. Please see below for an IRS example of how to calculate the tax liability and blended rate.

IRS Example

In the example below, a corporation (not a controlled group member) filing a Form 990-T for a tax year beginning July 1, 2017 and ending June 30, 2018 is reporting UBTI of $2,000 on line 34, made up in part of UBTI from a disallowed qualified transportation fringe amount reported on line 12. The corporation calculates income tax on line 35c of 2017 Form 990-T as follows: 

If you have any additional questions, please contact a member of the Schneider Downs tax-exempt group.