Form 990 Schedule R: Key Reporting Requirements
For not-for-profit organizations, Form 990 is more than a compliance exercise; it’s a public-facing document that tells your organization’s story. One area that often creates confusion, and can draw IRS scrutiny, is Schedule R, which focuses on related organizations and certain transactions. Properly completing this schedule is critical to transparency, accuracy, and risk management.
What Is Form 990 Schedule R and When Is It Required?
Schedule R must be completed if, at any time during the tax year, your organization had certain relationships with other entities. These relationships include parent-subsidiary structures (including disregarded entities), brother/sister organizations, supporting or supported organizations, sponsoring organizations, or involvement with a VEBA.
A common mistake is failing to list newly formed or newly related entities, particularly brother/sister organizations, across all applicable Forms 990. Even short-lived or newly established relationships can trigger reporting requirements.
How Control Is Determined
At the heart of Schedule R is the concept of control.
There are two primary types of control for tax-exempt entities:
Governing control, based on legal authority embedded in bylaws or operating agreements. Control must be a continuing power, not a one-time authority. Indicators of control include the power to appoint, elect, remove, or veto more than 50% of another entity’s governing body.
Operational control, which exists when one organization manages another or when governing boards overlap significantly. Specifically, when more than 50% of one board consists of employees, officers, or directors of another organization. Operational control is often missed since the organization is not mentioned in the bylaws or specifically referred to or treated as a related organization.
Understanding Direct and Indirect Control
Control can be direct or indirect, and indirect control is often overlooked. When assessing relationships, organizations must “look through” entity structures to identify who ultimately controls whom. Even if your organization does not hold a direct ownership interest, indirect control through subsidiaries or intermediary entities may still require disclosure.
When completing Schedule R, it’s important to check the appropriate control boxes and clearly identify the controlling entity. If the reporting organization directly controls another entity, list its name. If the intermediary organization directly controls the organization, then list its name. While “N/A” is acceptable in certain cases, this box should never be left blank. Be sure to mark the controlled entity box even if control is indirect.
Part V: Reporting Transactions
While all related organizations will mark the appropriate checkboxes for transaction types in Part V, line 1, not all related organizations report transactions on Part V, line 2. There are two categories of entities that need to report transactions in line 2. Generally, the controlling entity reports transactions, but not the controlled entity (unless the second category applies). The second category involves organizations exempt under 501(c)(3) or 4947(a)(1) who have transactions with related organizations that are not exempt under 501(c)(3). In that case the 501(c)(3) entity would report the transactions whether they are the controlling or controlled entity.
There is no minimum threshold for transactions involving the receipt of interest, annuities, royalties or rent from a controlled entity reported on Part V, line 1(a). For transactions listed in lines 1(b) through 1(s), amounts must be reported once they exceed $50,000. Transactions with disregarded entities, however, are excluded entirely and boxes should not be checked, and amounts should not be reported.
Related Entities Affecting Other Parts of the 990
Another reason to make sure that all related entities are listed on the Schedule R is because it can also impact other areas of the 990. For example, contributions from related organizations are specifically stated on the Statement or Revenue on line 1d. Perhaps the most important section of the 990 that can be affected by related organizations is Part VII Compensation. If an organization must be reported on Schedule R, then any compensation paid to officers, directors, etc. by the related organization must be reported on Part VII column E. Since compensation from all related entities is cumulative, this has the potential to push compensation over certain thresholds requiring Schedule J or even Form 4720 if compensation exceeds $1 million.
Partnering with Experts Who Understand Not-for-Profit Complexity
Schedule R is one of the most nuanced areas of Form 990. Proper reporting requires more than checking boxes, it requires a deep understanding of organizational structures, governance, and how control and transactions are viewed through a regulatory lens. Missteps can lead to inconsistencies across filings, missed filings, and questions from boards and donors.
CSH works closely with not-for-profit organizations to navigate Schedule R and the broader Form 990 with confidence. Our team brings specialized not-for-profit tax and advisory expertise to help organizations identify related entities, evaluate control, ensure accurate transaction reporting, and maintain alignment across filings year after year. Beyond compliance, we help organizations strengthen governance practices and reduce risk as their structures evolve.
Whether you are managing a complex organizational network, forming new entities, or simply want reassurance that your Form 990 tells the right story, CSH is a trusted partner at every stage. Reach out to learn how our not-for-profit specialists can support your organization, on Schedule R and beyond.
