What is the difference between a related organization and a controlled entity for purposes of Schedule R? 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 (see Meaning of Related Organization, Meaning of Control - Organization Without Owners, and Meaning of Control - Organization With Owners). 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. 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. Schedule R is used 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.