Here's a quick recap of the rule: According to Marci Thomas, CPA, MHA, and Kim Strom-Gottfried, Ph.D. in their book "The Best of Boards," UBIT applies to any income from a trade or business that is carried on regularly by a nonprofit when the purpose of the activity is not related to the mission. Even if the net proceeds from the activity will be used to further the nonprofit’s mission, it is still subject to UBIT.
Now on to the good news. There are at least five activities that are excluded from UBI taxes. Thomas and Strom-Gottfried list them as:
- Volunteer work force. If the activity is conducted with volunteers, then the income is not UBI even if the business is regularly carried on and not related to the organization’s tax-exempt purpose.
- Convenience of members. If the activity is operated for the convenience of members, students, patients, officers, or employees it is not UBI.
- Sponsorship payments. When a nonprofit receives a payment from a sponsor and the only benefit the sponsor gets is the inclusion of his or her company’s name or logo or use of products.
- Selling donated merchandise. When substantially all of the merchandise being sold in a business activity is donated.
- Telephone Pole rental. Pole rentals are not considered unrelated trade or business when rented by a mutual or cooperative telephone or electric company described in section 501(c) (12).