Unrelated Business Income and Form 990-T

On Demand Webinar

Webinar Details $219

  • Rated:
  • Webinar Length: 100 Minutes
  • Guest Speaker:   Tracy Paglia
  • Topic:   Taxation and Accounting
  • Credit:   CPE 2.0, ATATX 1.5
All Access Membership

Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income.   While the rules can be challenging, there are rules that can help an organization understand when and how it applies, and exceptions and exclusion to minimize or avoid the tax.  This session will focus on the standards and guidelines for determining whether income is UBI, and will explore the calculations and preparation of Form 990-T, Exempt Organization Business Income Tax Return, including the recent silo-ing rules.

After completing this course, you will be able to:

  • Identify what qualifies as UBI for a §501(c)(3) exempt organization
  • Use the exceptions and exclusions to correctly report UBI
  • Be aware of expenses available to offset UBI
  • Appropriately prepare Form 990-T to calculate and report UBIT, including reporting separate trades or businesses on Schedule A.
  1. Introduction
  2. Agenda 00:04:47
  3. § 513 Unrelated Trade Or Business 00:08:05
  4. UBI Overview 00:08:01
  5. UBI Overview - Trade Or Business 00:10:39
  6. UBI Overview - Trade Or Business Cont’d 00:11:34
  7. UBI Overview - Regularly Carried On 00:15:17
  8. UBI Overview - Unrelated To Exempt Purpose 00:17:26
  9. UBI Overview - Three Catagories 00:22:21
  10. Key Exceptions & Exclusions - Property And Investments 00:24:02
  11. Key Exceptions & Exclusions - Caution 00:27:07
  12. Key Exceptions & Exclusions - Research, Volunteers, And Thrift Shops 00:29:10
  13. Key Exceptions & Exclusions - Sponsorships, Public Entertainment Activities
  14. & Trade Shows, and Convenience 00:30:59
  15. Potential UBI Sources - Partnership Interests 00:38:04
  16. Potential UBI Sources - S Corporations 00:42:06
  17. Expense Allocations - IRC § 512 00:48:14
  18. Expense Allocations - Allocation Methods 01:00:55
  19. Expense Allocations - Allocation Methods Cont’d 01:07:14
  20. Expense Allocations - Pay Special Attention To: 01:07:55
  21. Recent Changes 01:12:46
  22. Recent Changes - UBTI 01:13:05
  23. Activity Silo-ing Example 01:17:14
  24. Activity Silo-ing Example Cont’d 01:17:43
  25. Activity Silo-ing Example Cont’d 01:18:01
  26. Investment Activities 01:23:21
  27. What Qualifies As A QPI? 01:26:06
  28. De Minimis Test 01:26:58
  29. Participation Test 01:29:30
  30. Net Operating Losses Summary 01:32:30
  31. Logistics 01:35:19
  32. Filings - Form 990-T 01:37:11
  33. Filings - Losses And State Filings 01:37:12
  34. Form 990-T 01:38:02
  35. Form 990 T, Sch A - Part I 01:38:32
  36. Form 990 T, Sch A - Part II 01:38:51
  37. Part I &  Part II 01:39:02
  38. Cautions 01:39:34
  39. Applicable Code Sections 01:40:55
  40. Resources 01:40:56
  41. Presentation Closing 01:40:57
  • 501(c)(3) 00:05:46, 01:11:09
  • AICPA 01:37:30, 01:37:31
  • Asset 00:21:24, 00:27:17
  • Audit 00:11:54, 00:54:49
  • Bonus Depreciation 01:09:46
  • C Corporation 00:12:19, 00:14:39, 00:44:19, 01:08:45
  • Controlled Entity 00:43:32
  • Cost Of Goods Sold (COGS) 01:35:50
  • De Minimis 01:26:09, 01:30:59
  • Depreciation 00:15:05
  • Depreciation 01:09:17
  • Dividends 00:27:38
  • Exempt  00:06:09, 00:09:42, 00:10:57, 00:15:36, 00:19:26, 00:27:58, 00:36:15, 00:42:22, 00:58:11, 01:08:02
  • Expense 00:06:13, 00:14:25
  • Form 8868 01:36:15
  • Form 990-T 00:00:10, 00:01:42, 00:04:09, 00:06:51, 01:00:49, 01:10:31, 01:13:05, 01:16:16, 01:35:21, 01:39:12
  • Hobby Loss 00:11:43, 00:14:56
  • Indirect Costs 00:56:06
  • Interest 00:26:57, 00:43:42
  • IRC Section 167 01:07:55
  • IRC Section 170 01:10:57
  • IRC Section 274 01:07:55
  • IRC Section 512(b)(13) 00:24:13
  • Look Through Rule 01:26:17
  • Net Operating Loss (NOL) 00:06:23, 00:14:47, 01:17:53, 01:32:41, 01:33:42, 01:39:19
  • Nonprofit 00:05:42, 00:27:14, 00:39:58, 01:36:06
  • Passive Activity Loss (PAL) 01:37:16
  • Personal Property 00:26:12
  • Profit 00:11:36, 00:13:00, 00:20:19, 00:36:38, 01:27:28
  • Qualifying Partnership Interest (QPI) 01:25:26
  • Real Property 00:24:25
  • Revenue 00:27:19, 00:29:21, 00:43:47, 00:56:50
  • Royalties 00:27:39, 00:43:43
  • Schedule K-1 00:38:29, 01:11:42, 01:27:08
  • S Corporation 00:39:42, 01:25:28
  • Section 179 Deduction 01:09:34
  • Silo 00:06:22, 00:13:29, 01:13:23, 01:23:24, 01:33:12, 01:39:19
  • Tax Cuts and Jobs Act 01:32:49, 01:33:21
  • Unrelated Business Income (UBI) 00:00:06, 00:04:50, 00:07:06, 00:08:18, 00:10:53, 00:11:14, 00:13:20, 00:22:28, 00:27:04, 00:38:11, 00:44:07, 01:11:29, 01:24:35, 01:35:30
  • Unrelated Business Taxable Income (UBTI) 00:04:54

501(c)(3): A 501(c)(3) organization is a corporation, trust, unincorporated association, or other type of organization that is exempt from federal income tax under section 501(c)(3) of Title 26 of the United States Code. It is the most common type of the 29 types of 501(c) nonprofit organizations in the United States. (en.wikipedia.com)

AICPA: The American Institute of Certified Public Accountants is the national professional organization of Certified Public Accountants in the United States, with more than 418,000 members in 143 countries in business and industry, public practice, government, education, student affiliates and international associates.

Asset: Property owned by a person or company, regarded as having value and available to meet debts, commitments or legacies.

Audit: A formal examination of an organization's or individual's accounts or financial situation

Bonus Depreciation: A valuable tax-saving tool for businesses. It allows your business to take an immediate first-year deduction on the purchase of eligible business property, in addition to other depreciation. (www.thebalancesmb.com)

C Corporation: A C corporation, under United States federal income tax law, refers to any corporation that is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately. Most major companies are treated as C corporations for U.S. federal income tax purposes.

Controlled Entity: A controlled entity is one type of related organization, whether tax-exempt or taxable, that is defined in Code section 512(b)(13) to include subsidiaries that are more-than-50 percent controlled by the organization.

Cost Of Goods Sold (COGS): The direct expenses related to producing the goods sold by a business. The formula for calculating this will depend on what is being produced, but as an example this may include the cost of the raw materials (parts) and the amount of employee labor used in production.

De Minimis: Too trivial or minor to merit consideration.

Depreciation: A reduction in the value of an asset with the passage of time, due in particular to wear and tear.

Dividends: A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, the corporation is able to re-invest the profit in the business and pay a proportion of the profit as a dividend to shareholders.

Exempt : Exempt employee is a term that refers to a category of employees set out in the Fair Labor Standards Act. They do not receive overtime pay, nor do they qualify for the minimum wage

Expense: Offset (an item of expenditure) as an expense against taxable income.

Form 8868: Form 8868 is used by an exempt organization to request an automatic 6-month extension of time to file its return. Also, the trustee of a trust required to file Form 1041-A or Form 5227 must use Form 8868 to request an extension of time to file those returns.

Form 990-T: Exempt organizations use Form 990-T to report unrelated business income. An exempt organization that has $1,000 or more gross income from an unrelated business must file Form 990-T, Exempt Organization Business Income Tax Return. The obligation to file Form 990-T is in addition to the obligation to file the annual information return.

Hobby Loss: Hobby loss is the term associated with funds spent to pursue a recreational activity that is not recouped. These expenses, when paid in connection with a hobby, are deductible only to the extent of income earned by the hobby or recreational activity. A loss is not allowed for expenses in excess of hobby income.

IRC Section 167: There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear, and tear of property used in the trade or business, or of property held for the production of income.

IRC Section 170: Section 170(a) provides, subject to certain limitations, a deduction for any charitable contribution, as defined in § 170(c), payment of which is made within the taxable year.

IRC Section 274: Section 274(k) generally provides that no deduction is allowed for the expense of any food or beverages unless (A) such expense is not lavish or extravagant under the circumstances, and (B) the taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages.

IRC Section 512(b)(13): The provisions of IRC 512(b)(13) and IRC 514 have application to all categories of organizations exempt from income tax under IRC 501(a), to trusts described in IRC 664, and to trusts taking deductions under IRC 642(c). Generally, these sections apply to all organizations exempt under IRC 501(a) in the same manner.

Indirect Costs: Indirect costs are costs that are not directly accountable to a cost object. Indirect costs may be either fixed or variable. Indirect costs include administration, personnel, and security costs. These are those costs that are not directly related to production. Some indirect costs may be overhead. Examples of indirect costs are production supervision salaries, quality control costs, insurance, and depreciation.

Interest : Interest is the charge for the privilege of borrowing money, typically expressed as annual percentage rate (APR). Interest can also refer to the amount of ownership a stockholder has in a company, usually expressed as a percentage.

Look Through Rule: The look-through rule under I.R.C. Section 954(c)(6) provides that dividends, interest, rents and royalties that one CFC receives or accrues from a related CFC are not treated as foreign personal holding company income

Net Operating Loss (NOL): Generally, a net operating loss (NOL) is an excess of deductions (for expenses from the operation of a business) over income from the operation of a business. For individuals, an NOL may also be attributable to casualty losses.

Nonprofit Corporation: A nonprofit organization, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is an organization dedicated to furthering a particular social cause or advocating for a shared point of view.

Passive Activity Loss (PAL): Passive activity loss rules are a set of tax regulations that prohibit taxpayers from using passive losses to offset earned or ordinary income. The passive activity loss rules generally limit the ability of taxpayers to shelter salaries, wages, and interest income with deductions and credits from passive activities, that is, trade or business activities in which the taxpayer does not materially participate.

Personal Property: Personal property is something that you could pick up or move around. This includes such things as automobiles, trucks, money, stocks, bonds, furniture, clothing, bank accounts, money market funds, certificates of deposit, jewels, art, antiques, pensions, insurance, books, etc.

Profit: A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.

Qualifying Partnership Interest (QPI): An interest in a partnership is a qualifying partnership interest (QPI) if the exempt organization holds a direct interest in the partnership (directly-held partnership interest) that meets the requirements of either the de minimis test or the participation test.

Real Property: Real property is land and any property attached directly to it, including any subset of land that has been improved through legal human actions. Examples of real properties can include buildings, ponds, canals, roads, and machinery, among other things

Revenue: In accounting, revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers. Revenue is also referred to as sales or turnover. Some companies receive revenue from interest, royalties, or other fees.

Royalties: A royalty is a payment made by one party (the licensee or franchisee) to another that owns a particular asset (the licensor or franchisor), for the right to ongoing use of that asset. ... A royalty interest is the right to collect a stream of future royalty payments.

S Corporation: An S corporation, for United States federal income tax, is a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. In general, S corporations do not pay any income taxes.

Schedule K-1: The Schedule K-1 is an Internal Revenue Service (IRS) tax form issued annually for an investment in partnership interests. The purpose of the Schedule K-1 is to report each partner's share of the partnership's earnings, losses, deductions, and credits.

Section 179 Deduction: Section 179 of the IRS Code was enacted to help small businesses by allowing them to take a depreciation deduction for certain assets (capital expenditures) in one year, rather than depreciating them over a longer period of time. Taking a deduction on an asset in its first year is called a "Section 179 deduction.

Silo: The 2017 Tax Act complicated this regime with a new subsection commonly referred to as the “SILO” rule, which requires each EO to calculate UBTI separately for each of its unrelated businesses and generally disallows using losses from one activity to offset gains from another.

Tax Cuts and Jobs Act: The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, Pub.L. 115–97, is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs Act, that amended the Internal Revenue Code of 1986.

Unrelated Business Income (UBI): For most organizations, unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption

Unrelated Business Taxable Income (UBTI): 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.


Guest Speaker

  • Tracy Paglia

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