What not-for-profits need to know about UBIT

• Published in: Journal of Accountancy Vol. 235; no. 8; pp. 1 - 4
• Main Author: Dennis, Anita
• Format: Trade Publication Article
• Language: English
• Published: New York American Institute of Certified Public Accountants 01.08.2024
• Subjects: Advertising; Business income; Coffee; Coffeehouses; College basketball; Income taxes; Nonprofit organizations; Profits; Tax rates; Taxable income; Unrelated business income tax
• ISSN: 0021-8448; 1945-0729

Many not-for-profit organizations dread the unrelated business income tax (UBIT) because it can be a challenge to sort out when a not-for-profit's activities are subject to the tax and when they are not. More than 80,000 exempt organizations filed a 2017 Form 990-T, Exempt Organization Business Income Tax Return, reporting $15.4 billion in taxable income and $871.4 million in tax, according to the most recent IRS statistics. [...]while more than half of those organizations did not have unrelated business taxable income (UBTI) after subtracting deductions from gross unrelated business income (UBI) and thus did not have a UBIT liability, it is not unusual for Sec. 501(c) tax-exempt organizations, especially charities, to have a UBIT liability, which can sometimes be an unexpected major expense. Contributions, which clearly are not UBI. * Program service revenue derived from the not-for-profit charging fees from the furthering of its mission, such as patient revenue paid to a hospital or ticket admission revenue to a museum. * Unrelated revenue (everything else). [...]substantial unrelated business activities might jeopardize the organization's tax-exempt status.