IRS provides guidance on level of UBIT.

• Author: Berger, Harvey J.
• Position: Unrelated business income tax - Brief Article

In Letter Ruling (TAM) 9521004, the IRS provided some guidance as to when excessive unrelated business income will threaten exempt status. The organization in the ruling was exempt under Sec. 501 (c) (3). The organization's exempt purpose was to assist shelters for children by providing funds and running programs. It conducted a reading program and a Saturday outing program, among others. It received donations from the public. The organization also received dues from members and conducted fundraising events, such as dinners and theater parties. The exempt activities were conducted by one full-time and two part-time employees and many volunteers.

In addition to the exempt programs, the organization ran a travel service. This activity provided about half of the organization's gross receipts, but only a small profit. The service booked tours for members of the organization and the general public. It advertised its activities in brochures sent to members. The travel service had one full-time employee.

Under Sec. 501 (c) (3), an organization must operate "exclusively" to carry on exempt activities. Regs. Sec. 1.501 (c) (3)-1 (c) (1) provides that Sec. 501 (c) (3) status is not available if "more than an insubstantial part of [the organization's] activities is not in furtherance of an exempt purpose." Regs. Sec. 1.501 (c) (3)-1 (e)...