Even if an activity is considered to generate UBI based on the three UBI criteria, there are a number of statutory exceptions modifications to income that are available under the UBIT regulations. An activity that would ordinarily be considered unrelated and subject to income tax is exempt from UBIT if any of the following conditions exist:
- Member convenience
- Volunteer work
- Donated property
- Government research
- Tax-Exempt colleges, universities and hospitals
- Rental of real property
- Dividends, interest, annuities, and royalties
More information about each of these exclusions is provided below.
An unrelated activity conducted by the University for the benefit of its members (students, faculty, and staff) is not subject to UBIT unless the income is generated from sales to non-members. In this case, only non-members sales are taxed. Examples of activities that are not subject to UBIT under the convenience exception include:
- Laundry facility for the students
- Hair cutting salon for students and university employees
UBIT does not apply to income from an activity in which substantially all of the work is performed without compensation.
Income from the sale of merchandise, substantially all of which has been donated by a gift or contribution.
Income from research conducted for the U.S., its instrumentalities or agencies, or any State, or its instrumentalities or political subdivisions.
Tax-Exempt Colleges, Universities, and Hospitals
Income from research and all deductions directly connected with the income for tax-exempt colleges, universities, and hospitals.
Rental of Real Property
In general, the rental of real property is not subject to unrelated business income tax unless personal services are rendered that are not customary or usual to the rental of space.
Dividends, Interest, Annuities, and Royalties
In general, not subject to UBIT.
04/30/2022: reviewed content
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