Unrelated Business Income Tax

Although exempt from federal and state income tax, Emory University is required to report and pay income tax on any income received from activities that are unrelated to its exempt mission. The IRS established these Unrelated Business Income Tax (“UBIT”) requirements to avoid unfair competition between non‐profit organizations and for‐profit, taxable businesses. The key principle revolves around the source of the revenue and not how that revenue is spent. The Federal Form 990-T is used to report the net taxable income from those unrelated activities. The university is also required to file in various states where unrelated business income is derived.

Taxable Income

Unrelated business income (“UBI”) is income generated by or within the university from activities if the activity is: 

  • Conducted as a trade or business
  • Regularly carried on
  • Not substantially related to the exempt purposes of the university
Trade or Business

An activity is considered regularly carried on if it is conducted with a frequency comparable to the conduct of a similar activity by other businesses.

Treasury regulations indicate that "trade or business" means any activity which is carried on to produce income and which could appear to compete with for-profit businesses offering similar products or services. Actual competition need not be present for taxation of unrelated business income.

Regularly Carried On

An activity is considered regularly carried on if it is conducted with a frequency comparable to the conduct of a similar activity in the private sector.

The general rule used by the IRS provides that UBIT is only imposed on income from a trade or business if the business is frequent, continuous, and pursued in a manner similar to commercial businesses. This is referred to as the "regularly carried on test."

Not Substantially Related

Activities must be substantially related to the exempt mission of the university to be exempt from income tax.

The IRS states that, generally, income received by an exempt organization from regularly carrying on a trade or business is not subject to UBIT if the business activity contributes importantly to the accomplishment of the organization's exempt purposes other than the need for income. This is known as the "substantially related test."

Emory's Exempt Purposes

The university's "mission" consists primarily of its exempt educational, scientific, research, and medical purposes.

Exceptions

There are several modifications, exclusions, and exceptions to unrelated business income. Some common considerations for Emory include:

  • Convenience - For Emory's students, faculty, staff, and patients
  • Passive income - Interest, dividends, royalties, capital gains, annuities*
  • Volunteer labor - Most of the work is performed without compensation
  • Donated merchandise - Sales of merchandise received as gifts or contributions
  • Surplus property - Sales of property no longer used by the university
  • Rents from real property - Services or personal property may trigger UBI

Potential UBI Activities

Some activities can easily be defined as UBI but in most situations, the facts and circumstances of each activity must be examined. Activities that warrant further consideration include (but are not limited to):

  • Sales of merchandise or services to the public
  • Partnership or joint venture interests that produce "flow though" UBI
  • Rental/use of space
  • Private use of tax-exempt bond financed facilities
  • Laboratory services
  • Travel tours
  • Publishing activities
  • Corporate sponsorship payments
  • Advertising income
  • Use of recreation or athletic facilities by the public, alumni, or spouse/children of employees and students

Questions

The Emory Tax Department sends out an annual questionnaire to departments, schools, and units to help determine if UBI activities have taken place.

If your department plans a new activity that could be considered UBI, please contact emorytax@emory.edu.