Instructions For Schedule R (Form 990) - 2016 (Page 2 of 7) in pdf

(Form 990). The filing organization must

trustees, directors, officers, employees,

nor Organization B is a parent of

report all information on its sponsoring

or agents of the parent.

Organization C or Organization D,

organizations in Parts II through IV, as

Organizations C and D are controlled by

Control of a stock corporation. One

applicable. However, the filing

the same persons, and therefore are

or more persons (whether individuals or

organization is only required to list the

brother/sister related organizations with

organizations) control a stock corporation

name of its contributing employers in Parts

respect to each other.

if they own more than 50% of the stock (by

II through IV, and isn't required to report

Example 2. There are 1,000

voting power or value) of the corporation.

any additional information in those parts.

individuals who are members of both

The filing organization must also report its

Control of a partnership or limited

Organizations E and F. The members

related transactions with sponsoring

liability company. One or more persons

elect the board members of both

organizations and contributing employers

control a partnership if they own more than

Organizations E and F. Organizations E

in Part V, line 1, and, if applicable, line 2.

50% of the profits interests or capital

and F are brother/sister related

interests in the partnership (including a

organizations with respect to each other.

Disregarded entity exception.

limited liability company treated as a

Disregarded entities are treated as

Indirect control. Control can be

partnership or disregarded entity for

related organizations for purposes of

indirect. For example, if the filing

federal tax purposes, regardless of the

reporting on Schedule R (Form 990), Part

organization controls Entity A, which in

designation under state law of the

I, but not for purposes of reporting

turn controls (under the definition of

ownership interests as stock, membership

transactions with related organizations in

control in these instructions) Entity B, the

interests, or otherwise). A person also

Part V, or otherwise on Form 990. A

filing organization will be treated as

controls a partnership if the person is a

disregarded entity of an organization

controlling Entity B. To determine indirect

managing partner or managing member of

related to the filing organization is

control through constructive ownership of

a partnership or limited liability company

generally treated as part of the related

a corporation, rules under section 318

which has three or fewer managing

organization and not as a separate entity.

apply. Similar principles apply for

partners or managing members

See Appendix F in the Instructions for

purposes of determining constructive

(regardless of which partner or member

Form 990.

ownership of another entity (a partnership

has the most actual control), or if the

or trust). If an entity (X) controls an entity

Bank trustee exception. If the filing

person is a general partner in a limited

treated as a partnership by being one of

organization is a trust that has a bank or

partnership which has three or fewer

three or fewer partners or members, then

financial institution trustee that is also the

general partners (regardless of which

an organization that controls X also

trustee of another trust, the filing

partner has the most actual control). For

controls the partnership.

organization isn't required to report the

this purpose, a “managing partner” is a

other trust as a brother/sister related

partner designated as such under the

Example 1. B, an exempt

organization on the ground of common

partnership agreement, or regularly

organization, wholly owns (by voting

control by the bank or financial institution

engaged in the management of the

power) C, a taxable corporation. C holds a

trustee.

partnership.

51% profits interest in D, a partnership.

Under the principles of section 318, B is

Definition of Control

Control of a trust with beneficial

deemed to own 51% of D (100% of C's

interests. One or more persons control a

51% interest in D). Thus, B controls both C

Related organizations. For purposes of

trust if they own more than 50% of the

and D, which are therefore both related

determining related organizations:

beneficial interests in the trust. A person’s

organizations with respect to B.

beneficial interest in a trust shall be

Control of a nonprofit organization

Example 2. X, an exempt

determined in proportion to that person’s

(or other organization without owners

organization, owns 80% (by value) of Y, a

actuarial interest in the trust as of the end

or persons having beneficial interests,

taxable corporation. Y holds a 60% profits

of the tax year.

whether the organization is taxable or

interest as a limited partner of Z, a limited

In some situations a named beneficiary

tax-exempt). One or more persons

partnership. Under the principles of

may have no determinable interest in the

(whether individuals or organizations)

section 318, X is deemed to own 48% of Z

trust. For instance, if Trust A allows the

control a nonprofit organization if they

(80% of Y's 60% interest in Z). Thus, X

trustee to distribute income and principal

have the power to remove and replace (or

controls Y. X doesn't control Z through X's

in the trustee’s sole discretion for 10 years

to appoint, elect, or approve or veto the

ownership in Y. Y is a related organization

to the then-living issue of X, with the

appointment or election of, if such power

with respect to X, and (absent other facts)

remainder (if any) to Charity B, then

includes a continuing power to appoint,

Z isn't.

Charity B has no interest in the trust that

elect, or approve or veto the appointment

can be determined before the 10-year

Example 3. Same facts as in

or election of, periodically or in the event

period is ended, and therefore doesn't

Example 2, except that Y is also one of

of vacancies) a majority of the nonprofit

control the trust for purposes of Form 990

three general partners of Z. Because Y

organization's directors or trustees, or a

and Schedule R.

controls Z through means other than

majority of the members who have the

ownership percentage, and X controls Y,

power to elect a majority of the nonprofit

See Regulations sections 301.7701-2,

in these circumstances, Z is a related

organization's directors or trustees. Such

3, and 4 for more information on

organization with respect to X. The other

power can be exercised directly by a

classification of corporations,

general partners of Z (if organizations)

(parent) organization through one or more

partnerships, disregarded entities, and

aren't related organizations with respect to

of the (parent) organization's officers,

trusts.

X, absent other facts.

directors, trustees, or agents, acting in

Examples of control by multiple

their capacity as officers, directors,

Example 4. Organizations A, B, C,

persons.

trustees, or agents of the (parent)

and D are nonprofit organizations.

organization. Also, a (parent) organization

Example 1. Organizations A and B

Organization A appoints the board of

controls a (subsidiary) nonprofit

each appoint one-third of the board

Organization B, which appoints the board

organization if a majority of the

members of Organizations C and D, and

of Organization C. A majority of the board

subsidiary's directors or trustees are

aren't otherwise related to Organizations

members of Organization D are also board

C and D. Although neither Organization A

members of Organization A. Under these

2017 Instructions for Schedule R (Form 990)

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Instructions For Schedule R (Form 990) - 2016 Page 2

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