How to avoid UBIT from a controlled subsidiary.

• Author: Boyce, Marc
• Position: Unrelated business income tax - Brief Article

IRS Letter Ruling 9324026 provides an imaginative escape from unrelated business income tax (UBIT) on interest income from a 100%-owned taxable subsidiary.

Sec. 512(b)(13) subjects interest income received from an 80%-or-more controlled subsidiary to UBIT.

In this ruling, a Sec. 501(c)(3) organization proposed to transfer enough of the subsidiary's stock to reduce its ownership below 80%. The recipient was another Sec. 501(c)(3) organization that was a supporting organization to the transferor. In fact, the same board controlled both organizations.

The Service ruled that the transfer will...