What is included in ubti

Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products.

List of Partners vendors. Unrelated business taxable income UBTI is income regularly generated by a tax-exempt entity by means of taxable activities. This income is not related to the main function of the entity but is needed to generate a small portion of income. The guidance gives taxpayers guidance to apply UBTI silo rules for tax exempt organizations.

The Internal Revenue Service IRS defines the income generated from unrelated business activities as income from a trade or business regularly carried on, that is not substantially related to the purpose that is the basis of the organization's exemption from tax.

UBTI was introduced in to ensure that tax-exempt businesses competed fairly with taxable companies in profit-generating activities. Most forms of passive income , such as dividends , interest income, and capital gains from the sale or exchange of capital assets, are not treated as UBTI. However, if the fund generates income which qualifies as UBTI, the fund may be subject to taxation.

Some transactions that may be considered unrelated business activity include:. Internal Revenue Service. Government Publishing Office. Accessed Nov. Corporate Finance. Income Tax. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.

These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Accordingly, the mechanical and distribution costs include the part of the costs and other expenses of composition, press work, binding, mailing including paper and wrappers used for mailing , and bulk postage attributable to the advertising lineage of the publication.

In the absence of specific and detailed records, the part of mechanical and distribution costs attributable to the periodical's advertising lineage can be based on the ratio of advertising lineage to total lineage in the periodical, if this allocation is reasonable. These are all expenses, depreciation, and similar items directly connected with the production and distribution of the readership content of the periodical.

Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. The method of allocation will vary with the nature of the item, but once adopted, it should be used consistently.

If an exempt organization publishes more than one periodical to produce income, it may treat all of them but not less than all as one in determining UBTI from selling advertising. The gross income from all the periodicals, and the deductions directly connected with them is figured on a consolidated basis. Consolidated treatment, once adopted, must be followed consistently and is binding.

This treatment can be changed only with the consent of the IRS. Whether the publication of a periodical is an activity engaged in for profit can be determined only by all the facts and circumstances in each case. The facts and circumstances must show that the organization carries on the activity for economic profit, although there may not be a profit in a particular year. The organization may establish that it had this objective by showing it can reasonably expect advertising sales to increase, so that total income will exceed costs within a reasonable time.

Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. Similarly, the total income attributable to each periodical has exceeded the total deductions attributable to each periodical for substantially all the years they have been published. The newsletter is a service that Y distributes to all of its members in an effort to keep them informed of changes occurring in the business world.

It is not engaged in for profit. Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its UBTI. An NOL arises when allowable deductions exceed gross unrelated trade or business income.

Subject to modifications described in section , the NOL is allowed as a deduction against unrelated business taxable income for a tax year to which the NOL can be carried, as described below. For example, a loss from an unrelated trade or business isn't diminished because the organization received dividend income.

In line with this concept, an NOL can arise only in a tax year for which the organization is subject to tax on unrelated business income. Further, section a 6 added by the Tax Cuts and Jobs Act changed the way exempt organizations report and figure the tax on income from unrelated trade or business activity.

Prior to the addition of section b 6 , an exempt organization would compute its NOL if any for each tax year on an aggregate basis, regardless of the number of separate unrelated trades or business conducted by the organization. Pre NOLs can be applied subject to modifications as a deduction to reduce unrelated business taxable income without regard to the unrelated trade or business activity that generated the income.

Even though an NOL can arise only in a tax year for which the organization is subject to tax on unrelated business income, the pre NOLs expire after 20 consecutive tax years. For example, if an organization was subject to the tax for and had an NOL for that year, the last tax year to which any part of that NOL may be carried over is , regardless of whether the organization was subject to the unrelated business income tax in any of the intervening years.

Section a 6 requires an organization with more than one unrelated trade or business to calculate UBTI in any tax year beginning after , including for purposes of determining any NOL post NOL or applying any post NOL deduction, separately with respect to each such trade or business. Certain farming and insurance company losses are exceptions and can be carried back as described in section b.

An organization that wishes to carry these NOLs forward must waive the carryback. For more details on the NOL deduction, including property eligible for an extended carryback period, see section and Pub. An exempt organization is allowed to deduct its charitable contributions in computing its UBTI even if the contributions are not directly connected with any unrelated business.

To be deductible, the contribution must be paid to another qualified organization. For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program.

For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution. An exempt trust that is subject to the unrelated business income tax at trust rates is generally allowed a deduction for charitable contributions in the same amounts as allowed for individuals.

However, the limit on the deduction is determined in relation to the trust's UBTI computed without regard to the deduction, rather than in relation to adjusted gross income. Contributions in excess of the limits just described may be carried over to the next 5 tax years. An exception is provided in the case of a diocese, province of a religious order, or a convention or association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit.

In these cases, the specific deduction for each local unit is limited to the lower of:. Gross income derived from an unrelated trade or business regularly conducted by the local unit. See Title-holding corporations in chapter 1 for a discussion of the only situation in which more than one legal entity may be included on the same Form T. X is an association of churches and is divided into local units A, B, C, and D.

An organization may have unrelated business income or loss as a member of an entity classified as a partnership for federal tax purposes see section and corresponding regulations , rather than through direct business dealings with the public. If so, it must treat its share of the partnership income or loss as if it had conducted the business activity in its own capacity as a corporation or trust. No distinction is made between limited and general partners or managing or non-managing members of a limited liability company.

The organization is required to notify the partnership of its tax-exempt status. Thus, if an organization is a member of a partnership regularly engaged in a trade or business that is an unrelated trade or business with respect to the organization, the organization must include in its UBTI its share of the partnership's gross income from the unrelated trade or business whether or not distributed , and the deductions attributable to it.

The partnership income and deductions to be included in the organization's UBTI are figured the same way as any income and deductions from an unrelated trade or business conducted directly by the organization. The partnership is required to provide the organization this information on Schedule K An exempt educational organization is a partner in a partnership that operates a factory.

The partnership also holds stock in a corporation. The exempt organization must include its share of the gross income from operating the factory in its UBTI but may exclude its share of any dividends the partnership received from the corporation. If the exempt organization and the partnership of which it is a member have different tax years, the partnership items that enter into the computation of the organization's UBTI must be based on the income and deductions of the partnership for the partnership's tax year that ends within the organization's tax year.

An organization that owns S corporation stock must take into account its share of the S corporation's income, deductions, and losses in figuring UBTI, regardless of the actual source or nature of the income, deductions, and losses.

For example, the organization's share of the S corporation's interest and dividend income will be taxable, even though interest and dividends are normally excluded from UBTI. The organization must also take into account its gain or loss on the sale or other disposition of the S corporation stock in figuring UBTI.

The UBTI of a foreign organization exempt from tax under section a consists of the organization's:. Unrelated business taxable income derived from sources within the United States but not effectively connected with the conduct of a trade or business within the United States; and. Unrelated business taxable income effectively connected with the conduct of a trade or business within the United States, whether or not this income is derived from sources within the United States.

To determine whether income realized by a foreign organization is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States, see sections through and the related regulations. Voluntary employees' beneficiary associations VEBAs described in section c 9 , and. Supplemental unemployment compensation benefit trusts SUBs described in section c This is gross income from dues, fees, charges, or similar items paid by members for goods, facilities, or services to the members or their dependents or guests, to further the organization's exempt purposes.

Exempt function income also includes income set aside for qualified purposes. This is income set aside to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals.

However, any amounts set aside by a VEBA or SUB that exceed the organization's qualified asset account limit determined under section A are unrelated business income. Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. These rules are explained in section a 3 E ii.

In addition, any income set aside and later spent for other purposes must be included in UBTI. Set-aside income is generally excluded from gross income only if it is set aside in the tax year in which it is otherwise includible in gross income. However, income set aside on or before the date for filing Form T, including extensions of time, may, at the election of the organization, be treated as having been set aside in the tax year for which the return was filed.

The income set aside must have been includible in gross income for that earlier year. If the organization sells property used directly in performing an exempt function and purchases other property used directly in performing an exempt function, any gain on the sale is recognized only to the extent that the sales price of the old property exceeds the cost of the new property.

The purchase of the new property must be made within 1 year before the date of sale of the old property or within 3 years after the date of sale. This rule also applies to gain from an involuntary conversion of the property resulting from its destruction in whole or in part, theft, seizure, requisition, or condemnation. The organization may set aside income from payments received for life, sick, accident, or health insurance for the organization's members or their dependents for the payment of insurance benefits or reasonable costs of insurance administration, or for use exclusively for religious, charitable, scientific, literary, or educational purposes, or the prevention of cruelty to children or animals.

For details, see section a 4 and the regulations under that section. The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income , may not apply to a payment of these items received by a controlling organization from its controlled organization. The payment is included in the controlling organization's UBTI to the extent it reduced the net unrelated income or increased the net unrelated loss of the controlled organization.

All deductions of the controlling organization directly connected with the amount included in its UBTI are allowed. Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's UBTI only to the extent of the amount that exceeds that would have been paid or accrued if the payments had been determined under section Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, , or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, , and the payments are received or accrued after December 31, Corporation or a Foreign Corporation Engaged in a U.

Trade or Business, or any Form , Return of U. See section b 13 E ii for more information. For a nonexempt organization, the part of its taxable income that would be UBTI if it were exempt and had the same exempt purposes as the controlling organization. For a nonexempt organization, the part of its NOL that would be its NOL if it were exempt and had the same exempt purposes as the controlling organization. No deduction is allowed for interest on the private activity bond.

See sections b 3 and c for more information. The assets are treated as if sold at fair market value. Tax-exempt entities include organizations described in sections a , , and , charitable remainder trusts, U. A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at fair market value. In such a case, the built-in appreciation is preserved in the replacement property received in the transaction.

A corporation that changes status from taxable to tax-exempt is treated generally as if it transferred all of its assets to a tax-exempt entity immediately before the change in status thus subjecting it to the tax on a deemed sale for fair market value. In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business.

If the parent later disposes of the property, then any gain not in excess of the amount not recognized is included in the parent's UBTI. If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan with a principal purpose of recognizing losses.

Investment income that would otherwise be excluded from an exempt organization's UBTI see Exclusions under Income , earlier must be included to the extent it is derived from debt-financed property. The amount of income included is proportionate to the debt on the property. In general, the term "debt-financed property" means any property held to produce income including gain from its disposition for which there is an acquisition indebtedness at any time during the tax year or during the month period before the date of the property's disposal, if it was disposed of during the tax year.

However, the tax on unrelated debt-financed income under section does not apply to property used for an exempt purpose.

See Exceptions to Debt-Financed Property , later. Sources of unrelated debt-financed income include rental real estate, tangible personal property, and corporate stock. For any debt-financed property, acquisition indebtedness is the unpaid amount of debt incurred by an organization:.

Before acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement, and. The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. Y, an exempt scientific organization, mortgages its laboratory to replace working capital used in remodeling an office building that Y rents to an insurance company for nonexempt purposes.

The debt is acquisition indebtedness since the debt, though incurred after the improvement of the office building, would not have been incurred without the improvement, and the debt was reasonably foreseeable when, to make the improvement, Y reduced its working capital below the amount necessary to continue current operations. X, an exempt organization, forms a partnership with A and B.

The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. The loan is secured by a mortgage on the entire office building. A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company.

The subsidiary used the funds to pay a debt owed to a third party that was previously incurred in acquiring two income-producing office buildings. Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. The union has no outstanding debt on the property. The subsidiary's debt to the union is represented by a demand note on which the subsidiary makes payments whenever it has the available cash.

The books of the union and the subsidiary list the outstanding debt as inter-organizational indebtedness.

In this situation, the very nature of the title-holding company and the parent-subsidiary relationship shows this debt to be merely a matter of accounting between the two organizations. Four years ago a university borrowed funds to acquire an apartment building as housing for married students. Last year, the university rented the apartment building to the public for nonexempt purposes.

The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. If an organization sells property and, without paying off debt that would be acquisition indebtedness if the property were debt-financed property, buys property that is otherwise debt-financed property, the unpaid debt is acquisition indebtedness for the new property.

It used the sale proceeds to buy an apartment building it rents to the general public. In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. Liens for taxes or assessments other than those discussed earlier in this paragraph. Exception for property acquired by gift, bequest, or devise. However, this applies to a gift of property only if:.

The mortgage was placed on the property more than 5 years before the date the organization received it, and. The donor held the property for more than 5 years before the date the organization received it. Whether an organization has assumed and agreed to pay all or part of a debt in order to acquire the property is determined by the facts and circumstances of each situation. When the principal of the modified debt is more than the outstanding principal of the old debt, the excess is treated as a separate debt.

The following are examples of acts resulting in the extension or renewal of a debt:. Substituting obligees whether or not with the organization's consent,. Renewing, extending, or accelerating the payment terms of the debt, and.

Adding, deleting, or substituting sureties or other primary or secondary obligors. If the outstanding principal of a modified debt is more than that of the unmodified debt, and only part of the refinanced debt is acquisition indebtedness, the payments on the refinanced debt must be allocated between the old debt and the excess. It must be the sole consideration other than a mortgage on property acquired by gift, bequest, or devise that meets the exception discussed under Property acquired subject to mortgage or lien , earlier in this chapter issued in exchange for the property received.

It must be payable over the lives of either one or two individuals living when issued. However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities including income from lending the securities would be debt-financed income. For this purpose, any payments because of the securities are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans.

Any deductions that are directly connected with collateral security for the loan, or with the investment of collateral security, are considered deductions that are directly connected with the securities loaned. In general, acquisition indebtedness doesn't include debt incurred by a qualified organization in acquiring or improving any real property. A qualified organization is:.

An educational organization described in section b 1 A ii and certain of its affiliated support organizations,. A retirement income account described in section b 9 in acquiring or improving real property in tax years beginning on or after August 17, However, the terms of a sales contract may provide for price adjustments due to customary closing adjustments such as prorating property taxes.

The contract also may provide for a price adjustment if it is for a fixed amount dependent upon subsequent resolution of limited, external contingencies such as zoning approvals, title clearances, and the removal of easements.

These conditions in the contract will not cause the price to be treated as an undetermined amount. However, see Note 1 at the end of this list. Any debt or other amount payable for the debt, or the time for making any payment, depends, in whole or in part, upon any revenue, income, or profits derived from the real property. The real property is leased back to the seller of the property or to a person related to the seller as described in section b or section b.

However, see Note 2 at the end of this list. The real property is acquired by a qualified retirement plan from, or after its acquisition is leased by a qualified retirement plan to, a related person. For this purpose, a related person is:. The seller, a person related to the seller under section b or section b , or a person related to a qualified retirement plan as described in 4 provides financing for the transaction on other than commercially reasonable terms.

The real property is held by a partnership in which an exempt organization is a partner along with taxable entities , and the principal purpose of any allocation to an exempt organization is to avoid tax.

This generally applies to property placed in service after For more information, see section c 9 B vi and section c 9 E. For more information, see section c 9 H. For purposes of 3 and 4 , small leases are disregarded. The extent to which property is used for a particular purpose is determined on the basis of all the facts. They may include:. A comparison of the time the property is used for exempt purposes with the total time the property is used,.

A comparison of the part of the property that is used for exempt purposes with the part used for all purposes, or. However, any gain on the disposition of the property not included in income from an unrelated trade or business is includible as gross income derived from, or on account of, debt-financed property. See Income from research under Exclusions , earlier in this chapter. An exempt organization is related to another exempt organization only if:.

One organization is an exempt holding company and the other receives profits derived by the exempt holding company,. One organization controls the other as discussed under Income From Controlled Organizations earlier in this chapter,. Each organization is a local organization directly affiliated with a common state, national, or international organization that also is exempt. An exempt hospital leases all of its clinic space to an unincorporated association of physicians and surgeons.

They, under the lease, agree to provide all of the hospital's outpatient medical and surgical services and to train all of the hospital's residents and interns. If an organization acquires real property with the intention of using the land for exempt purposes within 10 years, it will not be treated as debt-financed property if it is in the neighborhood of other property that the organization uses for exempt purposes.

Property is considered in the neighborhood of property that an organization owns and uses for its exempt purposes if it is contiguous with the exempt purpose property or would be contiguous except for an intervening road, street, railroad, stream, or similar property. Some issues to consider in determining whether acquiring contiguous property is unreasonable include the availability of land and the intended future use of the land.

The nearest land of sufficient size and utility is a block away from the campus. The university buys this land. Under these circumstances, the contiguity requirement is unreasonable and not applicable.

The land bought would be considered neighborhood land. Further, the rule applies after the first 5 years only if the organization satisfies the IRS that use of the land for exempt purposes is reasonably certain before the year period expires. The organization need not show binding contracts to satisfy this requirement; but it must have a definite plan detailing a specific improvement and a completion date, and it must show some affirmative action toward the fulfillment of the plan.

This information should be forwarded to the IRS for a ruling at least 90 days before the end of the 5th year after acquisition of the land. Send information to:. For any updates to these addresses go to IRS.

The neighborhood land rule or actual use rule applies to any structure on the land when acquired, or to the land occupied by the structure, only so long as the intended future use of the land in furtherance of the organization's exempt purpose requires that the structure be demolished or removed in order to use the land in this manner. If an actual demolition of these structures occurs, the use made of the land need not be the one originally intended as long as its use furthers the organization's exempt purpose.

A business lease is any lease, with certain exceptions, of real property for a term of more than 5 years by an exempt organization if at the close of the lessor's tax year there is a business lease acquisition indebtedness on that property. A claim must be filed within 1 year after the close of the tax year in which the actual use rule is satisfied. Interest rates on any overpayment are governed by the regulations. In January , Y, a calendar year exempt organization, acquired real property contiguous to other property that Y uses in furtherance of its exempt purpose.

Assume that without the neighborhood land rule, the property would be debt-financed property. From until the property is converted to an exempt use, the income from the property is subject to the tax on unrelated business income. During July , Y will demolish the existing structure on the land and begin using the land in furtherance of its exempt purpose. At that time, Y can file claims for refund for the open years through Further, Y also can file a claim for refund for , even though a claim for that tax year may be barred by the statute of limitations, provided the claim is filed before the close of The neighborhood land rule as described here also applies to churches, or a convention or association of churches, but with two differences:.

The period during which the organization must demonstrate the intent to use acquired property for exempt purposes is increased from 10 to 15 years, and. Further, this rule will apply after the first 5 years of the year period only if the church or association or convention of churches establishes to the satisfaction of the IRS that use of the acquired land in furtherance of the organization's exempt purpose is reasonably certain before the year period expires.

The same rule for demolition or removal of structures, as discussed earlier in this chapter under Limits , applies to a church or an association or a convention of churches. Thus, the formula for deriving unrelated debt-financed income is:. X, an exempt trade association, owns an office building that is debt-financed property. The percentage is that of the highest acquisition indebtedness with respect to the property during the month period preceding the date of disposition, in relation to the property's average adjusted basis.

The tax on this percentage of gain or loss is determined according to the usual rules for capital gains and losses. Debt-financed property exchanged for subsidiary's stock. A tax-exempt hospital wants to build a new hospital complex to replace its present old and obsolete facility. The most desirable location for the new hospital complex is a site occupied by an apartment complex. Several years ago the hospital bought the land and apartment complex, taking title subject to a first mortgage already on the premises.

For valid business reasons, the hospital proposed to exchange the land and apartment complex, subject to the mortgage on the property, for additional stock in its wholly owned subsidiary. The exchange satisfied all the requirements of section a. Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property as defined in section b 19 C , which was acquired by the organization after December 31, , is excluded from UBTI and is excepted from the debt-financed rules for such property.

This is the average amount of outstanding principal debt during the part of the tax year that the organization holds the property. Average acquisition indebtedness is computed by determining how much principal debt is outstanding on the first day in each calendar month during the tax year that the organization holds the property, adding these amounts, and dividing the sum by the number of months during the year that the organization held the property.

Part of a month is treated as a full month in computing average acquisition indebtedness. If an organization acquires or improves property for an indeterminate price that is, neither the price nor the debt is certain , the unadjusted basis and the initial acquisition indebtedness are determined as follows, unless the organization obtains the IRS's consent to use another method:. The unadjusted basis is the fair market value of the property or improvement on the date of acquisition or completion of the improvement.

The initial acquisition indebtedness is the fair market value of the property or improvement on the date of acquisition or completion of the improvement, less any down payment or other initial payment applied to the principal debt. The average adjusted basis of debt-financed property is the average of the adjusted basis of the property as of the first day and as of the last day that the organization holds the property during the tax year. The basis of the property must be adjusted properly for the entire period after the property was acquired.

As an example, adjustment must be made for depreciation during all prior tax years whether or not the organization was tax-exempt. Basis for debt-financed property acquired in corporate liquidation. If an exempt organization acquires debt-financed property in a complete or partial liquidation of a corporation in exchange for its stock, the organization's basis in the property is the same as it would be in the hands of the transferor corporation.

This basis is increased by the gain recognized to the transferor corporation upon the distribution and by the amount of any gain that, because of the distribution, is includible in the organization's gross income as unrelated debt-financed income. The organization files its return on a calendar year basis.

The allowable deductions are those directly connected with the debt-financed property or with the income from it including the dividends-received deduction , except that:. The allowable deductions are subject to the modifications for computation of the UBTI discussed earlier in this chapter ; and. To be directly connected with debt-financed property or with the income from it, a deductible item must have proximate and primary relationship to the property or income.

Expenses, depreciation, and similar items attributable solely to the property qualify for deduction, to the extent they meet the requirements of an allowable deduction. If a sale or exchange of debt-financed property results in a capital loss, the loss taken into account in the tax year in which the loss arises is computed as provided earlier.

See Gain or loss from sale or other disposition of property under Computation of Debt-Financed Income , earlier. X, an exempt educational organization, owned debt-financed securities that were capital assets.

Last year and the preceding 3 tax years, X had no other capital transactions. Y had no other UBTI for the year. When only part of the property is debt-financed property, proper allocation of the basis, debt, income, and deductions with respect to the property must be made to determine how much income or gain derived from the property to treat as unrelated debt-financed income.

X, an exempt college, owns a four-story office building that it bought with borrowed funds assumed to be acquisition indebtedness. During the year, the lower two stories of the building were used to house computers that X uses for administrative purposes. The two upper stories were rented to the public and used for nonexempt purposes. Since the two lower stories were used for exempt purposes, only the upper half of the building is debt-financed property.

Consequently, only the rental income and the deductions directly connected with this income are taken into account in computing UBTI. Photographs of Missing Children. Photographs of missing children selected by the Center may appear in instructions on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling THE-LOST if you recognize a child.

This toll-free telephone service is available Monday through Friday. Sign up to receive local and national tax news by email. To subscribe, visit IRS. Tax questions. Organizations Subject to the Tax U. Colleges and universities. Title-holding corporations. Extension of time to file.

Payment of Tax Estimated tax. Tax due with Form T. Depositing on time. Same-day wire payment option. Timeliness of deposits.

Unrelated Trade or Business Trade or business. Regularly conducted. Not substantially related. Selling of products of exempt functions. Dual use of assets or facilities. Exploitation of exempt functions. Examples Artists' facilities. Broadcasting rights. Business league's parking and bus services. Halfway house workshop. Health club program. Hospital facilities. Insurance programs. Magazine publishing. Membership list sales. Miniature golf course.

Museum eating facilities. Museum greeting card sales. Museum shop. Nonpatient laboratory testing. Pet boarding and grooming services. Publishing legal notices. Directory of members. Sales of advertising space.

Sales of cattle for commissions. Sales of hearing aids. School facilities. School handicraft shop. Selling endorsements. Services provided with lease. Sponsoring entertainment events. Travel tour programs. Youth residence. Excluded Trade or Business Activities Gaming. Bingo games. Gambling activities other than bingo. Legal definition. Legal where played. No for-profit games where played.

Convenience of members. Convention or trade show activity. Distribution of low-cost articles. Employee association sales. Exchange or rental of member lists. Hospital services. Pole rentals. Public entertainment activity.

Qualified sponsorship activities. Qualified sponsorship payment. Exception for contingent payments. Exception for conventions and trade shows. Exception for periodicals. Selling donated merchandise.

Volunteer workforce. Other exceptions. Income from lending securities. Mixed leases. Exception for rents based on net profit. Exception for income from personal services. Income from research. Gains and losses from disposition of property. Lapse or termination of options. Income from services provided under federal license.

Member income of mutual or cooperative electric companies. Deductions Directly Connected Expenses attributable solely to unrelated business. Expenses attributable to dual use of facilities or personnel.

Expenses attributable to exploitation of exempt activities. Periodical Income Gross advertising income. Circulation income. Allocable membership receipts. Periodical Costs Direct advertising costs. Readership costs.

Costs partly attributable to other activities. NOLs arising before NOLs arising in tax years after Charitable contributions deduction. Deduction limits. Specific deduction. Partnership Income or Loss Different tax years. Exempt function income. Income that is set aside. Nonrecognition of gain. Addition to tax for valuation misstatements.

Net unrelated income. Net unrelated loss. Continued debt. Property acquired subject to mortgage or lien. Liens similar to a mortgage. Modifying existing debt. Extension or renewal. Debt increase. Annuity obligation. Securities loans.

Short sales. Real property debts of qualified organizations. Certain federal financing. Exceptions to Debt-Financed Property Property related to exempt purposes.

Property used in an unrelated trade or business. Property used in research activities. Property used in certain excluded activities. Related exempt uses. Related organizations. Medical clinics. Life income contract. Neighborhood land rule. Actual use.

Refund of taxes. Computation of Debt-Financed Income Gain or loss from sale or other disposition of property. Average acquisition indebtedness. Indeterminate price. Average adjusted basis. Deductions for Debt-Financed Property Capital losses. Ordering Forms and Publications. Publication - Additional Material. Publication - Introductory Material. Future Developments. What's New. Which organizations are subject to the tax chapter 1 , What the requirements are for filing a tax return chapter 2 , What an unrelated trade or business is chapter 3 , and How to figure unrelated business taxable income chapter 4.

Comments and suggestions. Organizations Subject to the Tax. State and municipal colleges and universities. Qualified state tuition programs described in section Medical savings accounts MSAs described in section d. Coverdell savings accounts described in section The Tax and Filing Requirements. When to file. Estimated tax. Electronic Deposit Requirement. Unrelated Trade or Business. Trade or business.

Artists' facilities. An art museum maintained and operated for the exhibition of American folk art operates a shop in the museum that sells: Reproductions of works in the museum's own collection and reproductions of artistic works from the collections of other art museums prints suitable for framing, postcards, greeting cards, and slides ; Metal, wood, and ceramic copies of American folk art objects from its own collection and similar copies of art objects from other collections of artworks; Instructional literature and scientific books and souvenir items concerning the history and development of art and, in particular, of American folk art; and Scientific books and souvenir items of the city in which the museum is located.

Those other factors include: The normal manner in which the publication is circulated; The territorial scope of the circulation; The extent to which its readers, promoters, or the like could reasonably be expected to further, either directly or indirectly, the commercial interest of the advertisers; The eligibility of the publishing organization to receive tax-deductible contributions; and The commercial or noncommercial methods used to solicit the advertisers.

Example 1. Example 2. It meets the legal definition of bingo. It is legal where it is played. Games of chance conducted by an exempt organization may avoid being treated as an unrelated trade or business if they are: Conducted with substantially all volunteer labor, Qualified public entertainment activities, and Games of chance conducted in North Dakota.

A qualified convention or trade show activity is any activity of a kind traditionally conducted by a qualifying organization in conjunction with an international, national, state, regional, or local convention, annual meeting, or show if: One of the purposes of the organization in sponsoring the activity is promoting and stimulating interest in, and demand for, the products and services of that industry or educating the persons in attendance regarding new products and services or new rules and regulations affecting the industry; and The show is designed to achieve its purpose through the character of the exhibits and the extent of the industry products that are displayed.

A qualified pole rental is the rental of a pole or other structure used to support wires if the pole or other structure is used: By the telephone or electric company to support one or more wires that the company uses in providing telephone or electric services to its members, and According to the rental, to support one or more wires in addition to the wires described in 1 for use in connection with the transmission by wire of electricity or of telephone or other communications.

A qualified public entertainment activity is one conducted by a qualifying organization: In conjunction with an international, national, state, regional, or local fair or exposition; In accordance with state law that permits the activity to be operated or conducted solely by such an organization or by an agency, instrumentality, or political subdivision of the state; or In accordance with state law that permits an organization to be granted a license to conduct an activity for not more than 20 days on paying the state a lower percentage of the revenue from the activity than the state charges nonqualifying organizations that hold similar activities.

Advertising includes: Messages containing qualitative or comparative language, price information, or other indications of savings or value; Endorsements; and Inducements to purchase, sell, or use the products or services. Unrelated Business Taxable Income. Dividends, interest, annuities, and other investment income. Amounts in respect of dividends, interest, and other distributions, Fees based on the period of time the loan is in effect and the fair market value of the security during that period, Income from collateral security for the loan, and Income from the investment of collateral security.

Also excluded from UBTI are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includible in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or Cutting of timber that an organization has elected to consider as a sale or exchange of the timber.

Expenses attributable solely to unrelated business. The unrelated business exploits the exempt activity. The excess of these expenses, depreciation, and similar items over the income from, or attributable to, the exempt activity; or The gross unrelated business income reduced by all other expenses, depreciation, and other items that are actually directly connected.

Figuring UBTI. IF gross advertising income is.