Tax exempt/ UBI

Question 1

TAX on UBI

Answer 1

Unrelated business income is net income from the regular operation of business activity and from debt-financed property.

A tax-exempt organization’s unrelated business income is taxed using the tax rates for a trust.If the organization’s UBI is taxed, trust rates apply if it is a trust and corporate rates apply if it is a corporation.

Question 2

UBI

Answer 2

In a nonprofit organization, unrelated business income refers to income derived from an unrelated activity. It must be received from an activity that is an ongoing trade or business and is not substantially related to the organization’s tax-exempt purpose. Unrelated business income is usually subject to tax for most exempt organizations.

Question 3

1000 limit

Answer 3

An exempt organization is not taxed on unrelated business income of less than $1,000. (IRC Section 512(b)(12))

Question 4

UBI

Answer 4

Unrelated business taxable income must be derived from an activity that constitutes a trade or business that is regularly carried on and is not substantially related to the organization’s tax-exempt purposes

Question 5

UBI

Answer 5

Unrelated business income of an exempt organization does not include an activity where all the work is performed for the organization by unpaid volunteers.

Generally, tax-exempt organizations are subject to tax on income from any unrelated business (income from sale of goods or services rendered).