Unrelated Business Taxable Income

June 30th Tax Filers Be Aware!

As your organization carries out its operations, be careful not to raise what’s considered excessive unrelated business taxable income (“UBTI”). UBTI is income from a trade or business activity that is regularly carried out that is unrelated to your exempt mission. Although the Internal Revenue Code is silent as to how much is too much, excessive UBTI has been interpreted as spending a “significant” amount of time on the unrelated activity. An unofficial estimate would be approximately 20% or more of total expenses.

For example, if an organization has more expenditures for the unrelated activity than program expenses, the IRS will be more likely to consider terminating the organization’s exempt status. However, courts have considered a not-for-profit spending even as little as 10% of its total efforts on a UBTI activity to be too much.

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