The CPA Desk

A Thought Leader Production by PKFTexas

Everything Not-for-Profits Need to Know About Unrelated Business Income Tax

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m back again with Annjeanette Yglesias, one of our tax managers on our not for profit team.  Welcome back to the Playbook Annjeanette.

Annjeanette:  Thanks, Jen, it’s nice to be here.

Jen:  Well now I’ve heard you talk about unrelated business income tax; what is it?  What do nonprofits need to know about it?

Annjeanette:  Well, first of all, that’s a mouthful so we call it UBI.  UBI is an income tax that is imposed on certain tax-exempt organizations that participate in certain activities that are unrelated to their exempt purpose.

Jen:  So what would qualify for that UBI?

Annjeanette:  UBI is income from a trader business that is regularly carried on and that is not substantially related to the organization’s exempt purpose.

Jen:  So what would a leadership team look for?  How would they know that they need to do something about it?

Annjeanette:  I think the most important thing about UBI to remember is that it hinges heavily on the organization’s exempt purpose.  So I think in most cases the organization should talk to their CPA, just kind of make sure that an activity that they’re thinking about engaging in would qualify under UBI or not because tax could be imposed.

Jen:  What’s an example of something that would qualify under the UBI?

Annjeanette:  Actually it’s case by case.  I think the most important part of UBI to remember is that since it hinges heavily on the organization’s exempt purpose that you have to consider the facts and circumstances of each case.  So for example, one activity that is not considered UBI to one organization might be considered UBI to another organization.

Jen:  So that’s why they need to get you involved so that you can help go through that case by case and you can assist them with that.

Annjeanette:  Exactly.

Jen:  Perfect.  Well thank you so much for being here, I really appreciate it and we’ll get you back to talk about some more stuff impacting on profits.  How does that sound?

Annjeanette:  That sounds great.

Jen:  Perfect.  To learn more about how we can help not for profits visit PKFTexas.com/notforProfit/.  This had been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook.