Understanding Unrelated Business Income Tax (UBIT) for Nonprofits
Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business taxable income (UBTI), i.e. income generated by projects not substantially related to the organization’s exempt purpose. The IRS has stepped up its examinations of nonprofits with regard to unrelated business income tax (UBIT) rules. As nonprofit organizations explore new revenue streams, understanding UBIT should be a key part of any strategic discussion.
Common Sources of UBIT Exposure
- Advertising revenue
- Insurance programs
- Tradeshow income
- Rent from debt financed property
- Programs/services regularly carried on that are unrelated to the organizations tax-exempt purpose
How AAFCPAs Supports Nonprofits
AAFCPAs provides nonprofit tax consulting to help your organization manage UBIT exposure, including:
- Interpretation of complex UBIT laws
- Reviewing your organization’s UBIT exposure
- Identifying small changes in operations that can reduce UBIT liability
UBIT rules vary by state, and if unrelated business activities become excessive, a nonprofit could risk losing its tax-exempt status.
Strategic Nonprofit Consulting to Protect Your Tax-Exempt Status
It is imperative that not-for-profit entities seek guidance from AAFCPAs prior to structuring a venture to limit tax liability without jeopardizing their tax-exempt status. AAFCPAs works extensively with charitable organizations, assisting them to incorporate and obtain tax-exempt status and advising them on issues such as unrelated business income tax, corporate governance and planned giving.
It is imperative for nonprofits to seek professional guidance before structuring new ventures. AAFCPAs works extensively with charitable organizations, assisting them with:
- Incorporation and obtaining tax-exempt status
- Planning and compliance related to unrelated business income
- Corporate governance and planned giving strategies
Our team offers comprehensive nonprofit tax and consulting services, ensuring your organization minimizes tax liability while protecting its mission and tax-exempt status.