Instructions for Schedule R (Form 990) (2011)

Purpose of Schedule

Schedule R (Form 990) is used by an organization that files Form 990 to provide information on related organizations, on certain transactions with related organizations, and on certain unrelated partnerships through which the organization conducts significant activities.

Who Must File

The chart below sets forth which organizations must complete all or a part of Schedule R and attach Schedule R to Form 990. If an organization is not required to file Form 990 but chooses to do so, it must file a complete return and provide all of the information requested, including the required schedules.

Type of filer	IF you answer “Yes” to . . .	THEN you must complete . . .
All organizations	Form 990, Part IV, line 33 (regarding disregarded entities)	Schedule R, Part I.
All organizations	Form 990, Part IV, line 34 (regarding related organizations)	Schedule R, Parts II, III, IV, and V, line 1 as applicable.
All organizations	Form 990, Part IV, line 35a (regarding controlled entities under section 512(b)(13))	Schedule R, Part V, line 2.
Section 501(c)(3) organization	Form 990, Part IV, line 36 (regarding transfers to exempt noncharitable related organizations)	Schedule R, Part V, line 2.
All organizations	Form 990, Part IV, line 37 (regarding conduct of activity through unrelated partnership)	Schedule R, Part VI.

Overview

Part I requires identifying information on any organization that is treated for federal tax purposes as a disregarded entity. Part II requires identifying information on related tax-exempt organizations. Part III requires identifying information on any related organization that is treated for federal tax purposes as a partnership. Part IV requires identifying information on any related organization that is treated for federal tax purposes as a C or S corporation or trust. Part V requires information on transactions between the organization and related organizations (excluding disregarded entities). Part VI requires information on an unrelated organization taxable as a partnership through which the organization conducted more than 5% of its activities (as described in Part VI).

Parts I-VI of Schedule R (Form 990) may be duplicated if additional space is needed to report additional related organizations for Parts I-IV, additional transactions for Part V, or additional unrelated organizations for Part VI. Use as many duplicate copies as needed, and number each page of each part.

Part VII of Schedule R (Form 990) may be used to provide additional information in response to questions in Schedule R.

Relationships

An organization, including a nonprofit organization, a stock corporation, a partnership or limited liability company, a trust, and a governmental unit or other government entity, is a related organization to the filing organization if it stands, at any time during the tax year, in one or more of the following relationships to the filing organization.

Parent—an organization that controls (see definitions of control under Definition of Control) the filing organization.
Subsidiary—an organization controlled by the filing organization.
Brother/Sister—an organization controlled by the same person or persons that control the filing organization.
Supporting/Supported—an organization that is (or claims to be) at any time during the organization's tax year (i) a supporting organization of the filing organization within the meaning of section 509(a)(3), if the filing organization is a supported organization within the meaning of section 509(f)(3), or (ii) a supported organization, if the filing organization is a supporting organization.
Sponsoring Organization of a VEBA: an organization that establishes or maintains a section 501(c)(9) voluntary employees' beneficiary association (VEBA) during the tax year. A sponsoring organization of a VEBA also includes an employee organization, association, committee, joint board of trustees, or other similar group of representatives of the parties which establish or maintain a VEBA.
Contributing Employer of a VEBA: an employer that makes a contribution or contributions to the VEBA during the tax year.

Disregarded entity exception. Disregarded entities are treated as related organizations for purposes of reporting on Schedule R, Part I, but not for purposes of reporting transactions with related organizations in Part V, or otherwise on Form 990. A disregarded entity of an organization related to the filing organization is treated as part of the related organization and not as a separate entity. See Appendix F in the Instructions for Form 990.

Bank trustee exception. If the filing organization is a trust that has a bank or financial institution trustee that is also the trustee of another trust, the filing organization is not required to report the other trust as a brother/sister related organization on the ground of common control by the bank or financial institution trustee.

Definition of Control

Related organizations For purposes of determining related organizations:

Control of a nonprofit organization (or other organization without owners or persons having beneficial interests, whether the organization is taxable or tax-exempt)

One or more persons (whether individuals or organizations) control a nonprofit organization if they have the power to remove and replace (or to appoint, elect, or approve or veto the appointment or election of, if such power includes a continuing power to appoint, elect, or approve or veto the appointment or election of, periodically or in the event of vacancies) a majority of the nonprofit organization's directors or trustees, or a majority of the members who have the power to elect a majority of the nonprofit organization's directors or trustees. Such power can be exercised directly by a (parent) organization through one or more of the (parent) organization's officers, directors, trustees, or agents, acting in their capacity as officers, directors, trustees, or agents of the (parent) organization. Also, a (parent) organization controls a (subsidiary) nonprofit organization if a majority of the subsidiary's directors or trustees are trustees, directors, officers, employees, or agents of the parent.

Control of a stock corporation

One or more persons (whether individuals or organizations) control a stock corporation if they own more than 50% of the stock (by voting power or value) of the corporation.

Control of a partnership or limited liability company

One or more persons control a partnership if they own more than 50% of the profits interests or capital interests in the partnership (including a limited liability company treated as a partnership or disregarded entity for federal tax purposes, regardless of the designation under state law of the ownership interests as stock, membership interests, or otherwise). A person also controls a partnership if the person is a managing partner or managing member of a partnership or limited liability company which has three or fewer managing partners or managing members (regardless of which partner or member has the most actual control), or if the person is a general partner in a limited partnership which has three or fewer general partners (regardless of which partner has the most actual control). For this purpose, a “managing partner” is a partner designated as such under the partnership agreement, or regularly engaged in the management of the partnership.

Control of a trust with beneficial interests

One or more persons control a trust if they own more than 50% of the beneficial interests in the trust. A person’s beneficial interest in a trust shall be determined in proportion to that person’s actuarial interest in the trust as of the end of the tax year.

See Regulations sections 301.7701-2, 3, and 4 for more information on classification of corporations, partnerships, disregarded entities, and trusts.

Examples of control by multiple persons.

Example 1.

Organizations A and B each appoint one-third of the board members of Organizations C and D, and are not otherwise related to Organizations C and D. Although neither Organization A nor Organization B is a parent of Organization C or Organization D, Organizations C and D are controlled by the same persons, and therefore are brother/sister related organizations with respect to each other.

Example 2.

Organization E has 1,000 individual members who elect its board members. The membership of Organization E also is the membership of Organization F, and elects the board members of Organization F. Organizations E and F are brother/sister related organizations with respect to each other.

Indirect control. Control can be indirect. For example, if the filing organization controls Entity A, which in turn controls (under the definition of control in these instructions) Entity B, the filing organization will be treated as controlling Entity B. To determine indirect control through constructive ownership of a corporation, rules under section 318 apply. Similar principles apply for purposes of determining constructive ownership of another entity (a partnership or trust). If an entity (X) controls an entity treated as a partnership by being one of three or fewer partners or members, then an organization that controls X also controls the partnership.

Example 1.

B, an exempt organization, wholly owns (by voting power) C, a taxable corporation. C holds a 51% profits interest in D, a partnership. Under the principles of section 318, B is deemed to own 51% of D (100% of C's 51% interest in D). Thus, B controls both C and D, which are therefore both related organizations with respect to B.

Example 2.

X, an exempt organization, owns 80% (by value) of Y, a taxable corporation. Y holds a 60% profits interest as a limited partner of Z, a limited partnership. Under the principles of section 318, X is deemed to own 48% of Z (80% of Y's 60% interest in Z). Thus, X controls Y. X does not control Z through X's ownership in Y. Y is a related organization with respect to X, and (absent other facts) Z is not.

Example 3.

Same facts as in Example 2, except that Y is also one of three general partners of Z. Because Y controls Z through means other than ownership percentage, and X controls Y, in these circumstances, Z is a related organization with respect to X. The other general partners of Z (if organizations) are not related organizations with respect to X, absent other facts.

Example 4.

Organizations A, B, C, and D are nonprofit organizations. Organization A appoints the board of Organization B, which appoints the board of Organization C. A majority of the board members of Organization D are also board members of Organization A. Under these circumstances, Organizations B and D are directly controlled by Organization A, and Organization C is indirectly controlled by Organization A. Therefore, Organizations B, C, and D are subsidiaries of Organization A; Organization C is also a subsidiary of Organization B; and Organizations B and C have a brother/sister relationship with Organization D.

Group exemption. Central organizations and subordinate organizations of a group exemption are not required to be listed as related organizations in Schedule R, Part II. All other related organizations of the central organization or of a subordinate organization are required to be listed in Schedule R. The following rules apply.

An organization that is a central or subordinate organization in a group exemption (whether filing an individual return or a group return) is not required to list any of the subordinate organizations of the group in Schedule R, Part II.
In the case of a group return, the central organization must attach a list of the subordinate organizations included in the group return in response to Form 990, page one, item H(b). The central organization must list in Schedule R the related organizations of each subordinate organization other than (1) related organizations that are included within the group exemption, or (2) related organizations that the central organization knows to be included in another group exemption. If an organization is not listed because it is known to be included in another group exemption, the central organization must explain in Part VII the relationship between its own group and members and the related organization known to be included in another group exemption (but you need not include the names of such related organizations).
An organization that is not included in a group exemption is not required to list a related organization that is included in a group exemption. Similarly, an organization that is included in a group exemption is not required to list a related organization that is included in another group exemption. In either case, the organization must explain in Part VII the relationship between it and the related organization included in another group exemption (but you need not include the names of such related organizations).

Even if a related organization is not required to be listed in Part II, however, the organization must report its transactions with the related organization in Part V, as required by the Part V instructions (for example, transactions over the applicable $50,000 reporting threshold for line 2), including listing the name of the related organization in Part V, line 2, column (a), for transactions that must be reported in line 2.

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General Instructions

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