The university is a tax-exempt organization, and its pizza parlor generates unrelated business income.
In general, business activities of an exempt organization ordinarily are considered regularly carried on if they show a frequency and continuity, and they are pursued in a manner similar to comparable commercial activities of nonexempt organizations.
[9] The Internal Revenue Service does not consider the receipt of assets from a closely related tax-exempt organization to be unrelated business income.
[1] Individual retirement accounts generally are subject to tax on income that is taxable to most U.S. tax-exempt entities under 26 U.S.C.
In addition, the IRS unequivocally confirms this in the first few paragraphs of Chapter 1 of the November 2007 revision of Publication 598 that IRAs are "subject to the tax on unrelated business income".
The primary way investors have tried to limit the reach of the UBIT tax is by employing a strategy known as a "C Corp Blocker".
Mueller Company did not pay income tax on its profits because it now considered itself a charitable organization.
[14] New York University Law School won the case because, at that point, tax-exempt organizations were not subject to income tax on their revenue from any source as long as the revenue was used towards the organization's tax-exempt purpose.
[14][15] In 1950, Congress amended the tax law to introduce the concept of unrelated business income.