Category Archives: Unrelated Business Income Tax

Self-Declared Exempt Organizations – A Guide to Ensure IRS Compliance

In its 2012 workplan, the IRS announced it will be paying closer attention to self-declared 501(c)(4), (c)(5) and (c)(6) organizations. These groups include social welfare organizations; labor, agricultural and horticultural groups; as well as business leagues and chambers of commerce. Such organizations consider themselves to be tax-exempt because of the nature of their activities, but…Continue Reading

IRS 2012 Work Plan – What’s New for Nonprofits

Each year, the IRS publishes a report detailing what its focus will be regarding nonprofit organizations and compliance during the year to come. The following are some of the highlights from the 2012 Exempt Organizations Work Plan.Continue Reading

Nonprofit Law Jargon Buster – What is Unrelated Business Income?

Even if you end up having to pay some tax on it, having more income is always a good thing. The primary challenge for tax-exempt organizations is ensuring its unrelated business income is maintained within a relatively “safe” range of its overall exempt activity. It is acceptable for a tax-exempt organization to operate an unrelated business so long as operating the unrelated business is not its primary purpose. Unfortunately, there is no crisp test for determining when this threshold has been crossed. In determining whether the unrelated business has morphed into the organization’s primary purpose, all of the circumstances must be considered including the size and extent of the organization’s exempt purpose activities.Continue Reading

Is it Time to Form a For-profit Subsidiary?

Tax-exempt Organizations engaging in social enterprise or other active business pursuits often worry that a growing stream of unrelated business income could threaten their tax-exempt status. This concern is related to the prohibition against tax-exempt organizations engaging in more than an “insubstantial” amount of activity unrelated to their tax-exempt purpose. Unfortunately the term “insubstantial” is undefined. Based on court cases, it appears that gross unrelated business income receipts of 5 percent or less is always safe while over 20% is probably too much.

When unrelated business endeavors take off, the success of the business can threaten a 501(c)(3) organization’s tax-exempt status. To protect their tax-exempt status, many tax-exempt organizations with successful unrelated business ventures move their unrelated business activities into a taxable for-profit subsidiary.Continue Reading