Unrelated Business Income Tax (UBIT)
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 organizations explore new revenue initiatives, UBIT should be a familiar agenda item for any such discussion.
You may have UBIT exposure if you have income generated from:
- 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
AAFCPAs can support you by providing:
- Interpretation of complex UBIT laws
- Reviewing your UBIT exposure
Slight changes in the way a venture is managed can affect your UBIT exposure; and UBIT rules vary from state to state. If UBTI activities are deemed excessive, your organization could lose its 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.