In short
Unrelated business income is income an exempt organization earns from a trade or business it regularly carries on that isn't substantially related to its exempt purpose. It is taxed even though the organization is otherwise exempt.
Key takeaways
- Exceptions include businesses run mainly by volunteers, selling donated goods, and most passive income such as dividends, interest and royalties.
- There is a $1,000 specific deduction, and a return (Form 990-T) is required when gross unrelated business income is $1,000 or more.
- Debt-financed property can make otherwise passive income taxable.
Where it's tested
REG: Exempt Organizations Basics — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A tax-exempt museum operates a gift shop. Which activity would most likely generate unrelated business taxable income?