Articles · Basics · Nonprofit Tax and Form 990
UBIT: Unrelated Business Income Tax for Nonprofits
Tax-exempt organizations can still owe tax. Under Sections 511 to 514, income from a business unrelated to the exempt purpose can be subject to unrelated business income tax (UBIT).
The three-part test
Income is generally unrelated business income if it comes from a trade or business, is regularly carried on, and is not substantially related to the exempt purpose. Needing the money to fund programs does not make an activity related.
For example, a museum's art book sales may be related, but its general souvenir sales may not be.
Common exclusions
Dividends, interest, royalties, and many rents are generally excluded, unless debt-financed property is involved under Section 514. There are also exceptions for activities run mainly by volunteers, sales of donated goods, and activities for the convenience of members or staff.
Filing Form 990-T
Organizations with $1,000 or more of gross unrelated business income generally file Form 990-T. A $1,000 specific deduction applies, and corporate-form organizations pay the 21% corporate rate. Losses from one unrelated business generally cannot offset income from another.
Too much unrelated activity can also put exempt status at risk, so the size of the activity matters as well as the tax.
Key takeaways
- Apply the three-part test to each activity.
- Passive income is generally excluded.
- File Form 990-T from $1,000 of gross income.
For general education only, not tax advice. Tax law changes often, so confirm current rules and amounts with primary sources.