Maybe we do have UBIT

If your exempt organization is making money other than from contributions, you need to consider the possibility that you have unrelated business taxable income (UBIT). In our previous blog, we listed three easy exceptions. Activities that don't pass those exceptions need to consider the following three tests.

First, look at whether or not the activity is a business. Generally, this is any activity carried on to make a profit from the sale of goods or services.

Second, determine if the business is regularly carried on. The purpose of the unrelated business income tax is to place an exempt organization’s business on the same tax basis as that of any taxable entity with which it competes. If a taxable entity would carry on a restaurant year-round but the exempt organization only operates a sandwich shop for one week, the business is not regularly carried on. An activity carried on only one day a week but on a year-round basis is considered regularly carried on.

Third, decide if the conduct of the business is related to the performance of the charitable, educational, or other exempt purpose of the organization. The organization’s need for income and how they spend the profits are irrelevant-this does not make it a related purpose. The business activity must contribute importantly to the accomplishment of an exempt purpose. Consider the size and extent of the activity in relation to the nature and extent of the exempt function that it serves.

Need an example? More to come….