What Do You Mean Unrelated Business Income?

Most churches and ministries believe everything they do is part of their overall mission to further the work of Christ. Therefore, there couldn't possibly be anything unrelated about their operations...or could there?

Many organizations operate book or music stores, concession stands, coffee shops, or teen game rooms. They may sell advertising spots in a magazine or rent space in their building. So they may, unknowingly, have unrelated business income subject to tax.

Let's look at how to determine if your organization has an issue.

We can first eliminate many activities because unrelated business taxable income (UBIT) does not include:

(1) Activities in which substantially all the work is performed by unpaid volunteers,

(2) Activities primarily for the convenience of members, students, or employees, or

(3) Selling merchandise received as gifts or contributions.

Many activities such as bake sales, thrift shops, car washes, and fundraising dinners are exempt due to these three exclusions.

If the activity does not meet any of these exceptions, there are three additional tests to consider, which we will cover in our next UBIT update...