Even if your DLC is not generating a profit, it may be engaged in one or more taxable unrelated business income (UBI) activities.

Identify unrelated business income (UBI)

Income from an activity carried on by a tax-exempt entity such as MIT may be considered UBI if it:

  • constitutes a trade or business
  • is carried on regularly
  • isn’t substantially related to the exempt purpose, other than through the production of income

Generally, such income may be considered unrelated business income tax (UBIT) and thus subject to tax.

Trade or Business

A trade or business is any activity that produces income either from the sale of goods or the performance of services. Typically, such activity generates a profit or is conducted in the same manner as a for-profit business. Some UBI-generating activities might show a profit in one year and a loss in the next. An activity can still be considered UBI-producing even if no profit is created.

Regularly Carried On

An activity is “regularly carried on” when your DLC conducts the activity with the same frequency or continuity and in a similar manner as a for-profit organization would conduct a comparable activity.

Not Substantially Related

MIT’s tax-exempt status is tied directly to activities that have education and research purposes. Any of your DLC’s activities that are not substantially related to MIT’s education and research activities may be considered unrelated to the Institute’s tax-exempt status and mission. It is irrelevant that the proceeds from an activity are used to fund education or research. The determining factor is the nature of the activity itself.

Review examples of UBI activities

The following examples will help you understand the types of DLC activities that may generate UBI:

  • rental income with the provision of services
  • advertising and sale of mailing lists
  • certain retail operations
  • paid parking offered to the public

Note, however, that the IRS provides certain exceptions to the general UBI requirements.

Understand potential tax implications

The IRS requires MIT to pay tax on unrelated business taxable income (UBTI). The federal tax rate for UBTI ranges from 15 percent to 39 percent.

Your DLC is responsible for any tax costs associated with its UBI activities. If you think your DLC is engaged in UBI-generating activities, contact either Long Tran (617-452-4532) or Rebecca Berger (617-324-0038) as soon as possible for assistance.

The Details

Identify unrelated business income (UBI)

Income from an activity carried on by a tax-exempt entity such as MIT may be considered UBI if it:

  • constitutes a trade or business
  • is carried on regularly
  • isn’t substantially related to the exempt purpose, other than through the production of income

Generally, such income may be considered unrelated business income tax (UBIT) and thus subject to tax.

Trade or Business

A trade or business is any activity that produces income either from the sale of goods or the performance of services. Typically, such activity generates a profit or is conducted in the same manner as a for-profit business. Some UBI-generating activities might show a profit in one year and a loss in the next. An activity can still be considered UBI-producing even if no profit is created.

Regularly Carried On

An activity is “regularly carried on” when your DLC conducts the activity with the same frequency or continuity and in a similar manner as a for-profit organization would conduct a comparable activity.

Not Substantially Related

MIT’s tax-exempt status is tied directly to activities that have education and research purposes. Any of your DLC’s activities that are not substantially related to MIT’s education and research activities may be considered unrelated to the Institute’s tax-exempt status and mission. It is irrelevant that the proceeds from an activity are used to fund education or research. The determining factor is the nature of the activity itself.

Review examples of UBI activities

The following examples will help you understand the types of DLC activities that may generate UBI:

  • rental income with the provision of services
  • advertising and sale of mailing lists
  • certain retail operations
  • paid parking offered to the public

Note, however, that the IRS provides certain exceptions to the general UBI requirements.

Understand potential tax implications

The IRS requires MIT to pay tax on unrelated business taxable income (UBTI). The federal tax rate for UBTI ranges from 15 percent to 39 percent.

Your DLC is responsible for any tax costs associated with its UBI activities. If you think your DLC is engaged in UBI-generating activities, contact either Long Tran (617-452-4532) or Rebecca Berger (617-324-0038) as soon as possible for assistance.

Did You Know?

VPF has assembled a dedicated team to support your DLC’s global operations. Visit the Global Support page of this website to learn more.
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