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Exempt Organizations Annual Reporting Requirements - Form 990, Schedule R: "Related Organization" and "Controlled Entity" Reporting Differences

What is the difference between a related organization and a controlled entity for purposes of Schedule R, Form 990? Why does the IRS require certain transactions between the filing organization and a controlled entity to be reported on the schedule, even if the transaction amount is less than the reporting thresholds applicable to other transactions with related organizations?

A related organization for Form 990 purposes is defined by the glossary and instructions. A controlled entity is one type of related organization, whether tax-exempt or taxable, that is defined in Code section 512(b)(13) to include subsidiaries that are more-than-50 percent controlled by the organization. Code section 6033(h) requires controlling organizations to report certain controlled entity transactions, including loans, fund transfers and receipt of interest, annuities, royalties or rents from the controlled entity, on their Forms 990. Use Schedule R to report this information.  Because receipts or accruals of interest, annuities, royalties or rent from a controlled entity are subject to special tax treatment under section 512(b)(13), they must be reported regardless of amount.

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Page Last Reviewed or Updated: 08-Apr-2014