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.
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.
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 Jodi Kessler or Jeremy Raphael as soon as possible for assistance.
The Details
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.
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.
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 Jodi Kessler or Jeremy Raphael as soon as possible for assistance.
