Many tax-exempt organizations may have unrelated business units that are part of the organization’s tax-exempt purpose, and are used to fund the organization. These unrelated businesses, while not jeopardizing the organization’s tax-exempt status, could yield taxable income to the organization.
If the business is run by paid employees and is not for the convenience of the organization’s members or employees, and is not selling merchandise that was primarily acquired through fits or contributions, this business is a taxable unrelated business. An example of this would be a gift shop in a museum.
The tax-exempt organization would allocate revenues and related expenses for the unrelated business and report it on Form 990-T. The tax is basically computed as if the unrelated business was a C-corporation. This means that net operating loss carry backs and carry overs are allowed.
For more information, or to discuss the possibility of unrelated business taxable income in your organization, please contact us.