Final regs. on travel and tour activities.

• Author: Sair, Edward A.
• Position: Tax-exempt organizations

The IRS has issued Regs. Sec. 1.513-7, clarifying when travel and tour activities of a tax-exempt organization are substantially related to its exempt purpose and when such activities may be subject to tax as an unrelated trade or business. These regulations are especially pertinent to college, university, alumni association and membership organizations. The regulations adopt, with modifications, the proposed regulations published on April 23, 1998. The new regulations are effective for tax years beginning after Feb. 7, 2000.

Code and Present Regulations

Sec. 513(a) generally defines an unrelated trade or business as any trade or business in which the conduct is not substantially related to the exercise or performance by the organization of the charitable, educational or other purpose or function that constitutes the basis for its exemption under Sec. 501(a). Regs. Sec. 1.513-1(d)(2) provides that, for the conduct of a trade or business to be substantially related to the purposes for which the exemption was granted, the production or distribution of the goods or the performance of services must contribute importantly to the accomplishment of those purposes. Whether activities generating gross income contribute importantly to accomplishing any purpose for which an organization was granted exemption is a facts-and-circumstances analysis. This rule applies to travel and tour activities conducted by exempt organizations.

Final Regs.

Because exempt organizations have a variety of purposes, Regs. Sec. 1.513-7 does not enumerate specific factors that determine relatedness of travel and tour activities to exempt purposes; instead, it adopts the general facts-and-circumstances approach of the proposed regulations. However, Regs. Sec. 1.513-7 includes seven examples that provide additional guidance for applying the facts-and-circumstances approach in both educational and noneducational contexts. The relevant facts and circumstances include (but are not limited to) how a travel tour is developed, promoted and operated. Note: Individual tour travel programs need to be addressed separately, as the determination of...