bbrr-Who's afraid of unrelated business income tax

It is cold here. It was so cold in my computer room , I was starting to blog, but my fingers kept freezing. I'm starting to envy the short sleeves on that little Ethiopian girl, but thats about all I envy. I told you I'd find out all about UBIT and I did! I slogged through many (feels like thousands) dry, boring, IRS journals so you don't have to. I have written the following article. I hope it is a help.

Who’s afraid of unrelated business tax?

Not- for profit corporations often hear the words unrelated business income tax and they scoop up their exemptions and run for the hills This is partly due to litigation signed by the President in August 2006. It doesn’t have to be feared and is often needed for the continued performance of the exempt company
Unrelated business income tax (or UBIT ) is incurred when that company takes part in a trade or business. that is NOT substantially going to further its exempt purpose. (Furthering it’s income does not count.. Knowing the I.R.S .the definition is not quite simple as that. In an effort to define there are a number of modifications, exclusions, and exceptions .These can be confusing.. Those exceptions are;1.) Volunteer Labor- Any trade or business which uses virtually all of its labor on volunteer basis from members, is excluded from paying unrelated business tax. It seems church bake sales are safe 2) Another place of safety, is any business or trade in business for the convenience of its members. An example of this would be a hospital cafeteria, if the hospital was a non-profit one. The last type of exception would be:3) The reselling or selling of donated merchandise Oftentimes in an effort to donate, companies will donate goods which can either be used or re-sold by the non-profit. This kind of trade is also exempt from unrelated business tax.
To extend the confusion and muddied waters more interpretation of the word substantial is going to be wide. A good rule of thumb in deciding if an activity would be considered for unrelated business tax is all in the size of the event .Ask yourself the following questions: Is the activity of a size that would be comparable to the members of that group.? Another question would be if the activity is meant to comparable with regular trade or business?
Unrelated business income tax is not the end of the earth. Non-profits are finding it increasingly necessary to dabble in the business world in order to generate the income needed to accomplish their tax exempt purpose .It will not affect the non profits tav exemption if they simply comply with the law, admit and remit the tax.
Hope this kind of clears things up for you a bit