Notwithstanding a nonprofit’s Tax exempt status, it may still be assessed taxation on income derived from certain activities that are unrelated to its exempt purpose.

Generally, unrelated business income tax (“UBIT”) is tax generated from unrelated business income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purposes justifying the basis for its Tax exempt status.

A Tax exempt organization that generates an income of $1,000 or greater from an unrelated trade or business must file IRS Form 990-T, in addition to its usual annual informational tax return, IRS Form 990, and remit any tax due.

Although the generation of UBIT can oftentimes be justified by a lucrative revenue generation stream which can ultimately further the organization’s mission, too much UBIT can jeopardize the organization’s Tax exempt status.

Our attorneys work with nonprofits to evaluate the tax consequences of unrelated business income, which may include the utilization of subsidiaries, “UBIT blocker entities”, or examination of available exceptions and exclusions.