Unrelated business income
is produced from an activity that is conducted on a regular basis and is not directly related to an organization's tax-exempt mission.
Therefore, it is critical that you take the proper steps in determining what portion of your advertising income is treated as an unrelated trade or business and subject to UBIT In addition, your organization must be careful in allocating the direct advertising and readership costs associated with the periodical generating unrelated business income
. Specially allocating direct advertising and readership costs also puts the organization in a tax position that is subject to being weighed in accordance with FIN 48.
Furthermore, EMOs with advertising revenue exhibit more cost shifting than EMOs with other types of unrelated business income
, despite (or perhaps because of) the fact that the Treasury Department has issued detailed regulations outlining an appropriate allocation of costs to advertising income.
A recent series by Herbert Snyder (1998), "When Fund-Raising is Too Innovative" in Library Administration and Management, addresses two tax areas that must be considered when developing fund-raising programs: unrelated business income
and tax-exempt status.
The relevant law is the Unrelated Business Income
Tax (UBIT), which was passed by Congress in 1950 to prevent nonprofit groups from unfairly competing with businesses that must pay taxes.
Section 501(c)(9) exempts a VEBA from income tax if it provides "for the payment of life, sick, accident, or other benefits," and section 512(a)(3)(b) exempts a VEBAs income from the unrelated business income
tax (UBIT) to the extent it is set aside for "the payment of life, sick, accident, or other benefits." The company also cited to regulations promulgated under section 501(c)(9) demonstrating that all benefits under a VEBA are "fungible" and not segregated for specific purposes.
And third, the earnings of 501(c) (9) VEBA trusts are taxable as unrelated business income
For management, the company assumed that future inflation for purposes of computing the tax-deductible contribution would be zero, as required by legislation, and that trust earnings would be subject to Unrelated Business Income
Representative Jake Pickle of Texas, Chairman of the House Ways and Means Committee's Subcommittee on Oversight introduced a set of proposals (request for comments 63 DER G-5, 4/1/88) to change the rules concerning Unrelated Business Income
Tax (UBIT) for not-for-profit organizations, such as ACM.
Over the course of two weeks, the panel heard from about 75 groups addressing all sides of unrelated business income
Enacted in December 2017, the Tax Cuts and Jobs Act applies the Unrelated Business Income
Tax (UBIT) of 21% to tax-exempt organizations in an unprecedented manner.
Unrelated business income
. In general, not-for-profit entities do not pay income taxes.