Form 990-T [CapiPedia]

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====== Form 990-T ======
Form 990-T, officially the "Exempt Organization Business Income Tax Return," is a tax form filed with the US [[Internal Revenue Service]] (IRS) by organizations that are normally tax-exempt. You might be scratching your head—why would a "tax-exempt" entity like a charity, university, or pension fund need to file a tax return? The answer lies in a concept called [[unrelated business income]] (UBI). In short, if a non-profit organization earns significant income from activities that are not directly related to its core charitable, educational, or other exempt purpose, the [[IRS]] wants its cut. This form is used to report that income and calculate the tax owed. While it might sound like a dusty piece of tax compliance, for a savvy investor, the 990-T can be a treasure map leading to hidden insights.
===== Why Should a Value Investor Care? =====
At first glance, a non-profit's tax form seems worlds away from stock picking. But what if it could give you a glimpse into the secret moves of major institutional investors? The most famous example of this comes from Dr. [[Michael Burry]], the investor lionized in //The Big Short//. In his legendary analysis of [[GameStop]], Burry didn't just look at standard financial statements. He dug into the Form 990-T filings of large university endowments and pension funds. He correctly deduced that income reported on these forms from certain investment activities could reveal which of these giants were lending out their shares, a necessary step for others to short the stock.
By tracking these filings, an investor can sometimes uncover which seemingly quiet, long-term-oriented institutions are participating in a stock's lending market. This can provide clues about the scale of [[short interest]] and the nature of the institutions facilitating it—information that is rarely available through conventional channels. It’s a masterclass in [[scuttlebutt]] investing: finding an edge by looking where no one else is.
===== Breaking Down Form 990-T =====
==== What is Unrelated Business Income (UBI)? ====
The government grants tax-exempt status to organizations to help them fulfill a social good. It doesn't want this tax break to give them an unfair competitive advantage in a commercial marketplace. UBI is typically income generated from a venture that meets three criteria:
  * It is a trade or business.
  * It is regularly carried on.
  * It is not substantially related to the organization's exempt purpose.
A classic example is a university museum. Selling reproductions of its art is related to its educational purpose and the income is not taxed. However, if that same museum operates a public restaurant on its premises, the profits from the restaurant would likely be considered UBI and taxed accordingly.
==== The Debt-Financed Income Twist ====
Here’s where it gets interesting for investors. A major category of UBI is [[debt-financed income]]. This is, quite simply, income generated from assets that were acquired using borrowed money, or [[leverage]]. For instance, if a university endowment uses a [[margin]] loan to buy a portfolio of dividend-paying stocks, a portion of the dividends received would be classified as debt-financed income and reported on Form 990-T.
This principle extends to the complex world of stock lending. When an endowment or pension fund lends its shares to a short seller, it receives cash collateral in return. The fund can then earn interest or other income by investing this cash. If the fund uses any form of leverage in this process, or if the lending activity itself is structured as a business, the income it generates can be considered UBI. This is the breadcrumb trail Burry followed. The 990-T filings showed income from stock lending, revealing which institutions were key players in the market for GameStop shares.
==== Finding the Filings ====
Form 990-T filings are public records. While navigating the IRS website can be cumbersome, several non-profit organizations and data providers make these documents accessible. Websites like ProPublica's "Nonprofit Explorer" archive millions of 990-series forms, allowing users to search for specific organizations and view their public tax filings.
===== A Value Investor's Playbook =====
Using Form 990-T is undoubtedly an advanced technique, but it perfectly illustrates the value investing ethos of thorough, independent research. You probably won't use it for every investment, but knowing it exists adds a powerful tool to your analytical arsenal.
Here's the takeaway:
  * **Think outside the box:** The most valuable information is often found where others aren't looking. Standard reports are a starting point, not the finish line.
  * **Follow the paper trail:** Tax filings, regulatory documents, and other obscure reports can reveal the actions and motivations of key market participants.
  * **Connect the dots:** By understanding niche concepts like UBI and debt-financed income, you can translate seemingly boring compliance documents into actionable intelligence about institutional sentiment and market structure.