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The University's primary purpose is the fulfillment of the institution's educational, research or public service missions. While the University is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code, that exemption does not apply to income from certain business activities that are unrelated to the primary business purpose. 

The use of revenue generated from the unrelated business activity for the purpose of improving the quality of education or activity supporting the research mission makes no difference on UBI reporting requirements. It is the source of income that is the IRS' concern.

The purpose of the UBI tax laws is to prevent tax-exempt entities from having an unfair advantage when engaging in activities that compete with the private sector. The private sector incurs corporate income tax on all income, while exempt entities incur taxes only on unrelated income.

Below are some examples of business activities that may be considered as unrelated to exempt mission of the University:

• Sale of goods or services to the general public that are not related to education, teaching or academic research
• Rental of space to non-University entities if services (e.g., custodial or security) or equipment are provided
• Rental of recreation equipment to the general public and alumni
• Alumni and public use of a recreation center
• Sale of audio-visual services to non-university users
• Professional entertainment events operated in a commercial manner and not part of an educational program
• Advertising revenue from University publications or websites. Example: External sales of advertising such as print advertisements, scoreboard advertisements, and revenue received from advertisements run during radio and television shows
• Corporate sponsorships with return benefits (beyond name/logo recognition)
• Conference or facility hosting for external groups (not academic in nature)
• Sale of scientific testing or consulting services not tied to academic research
• Travel tours

Some activities may be excluded from UBIT, even if they generate revenue:

• Activities performed substantially by volunteers
• Activities for convenience of ºÚÁÏÉçÇøs, faculty, staff (e,g campus dining for ºÚÁÏÉçÇøs and employees)
• Revenue derived from the sale of donated goods (e.g., fundraising auctions)
• Certain qualified research activities
• Rental of real property (with no personal services or equipment included)
• Passive income (interest, dividends, royalties)
• Admission fees from performance of ºÚÁÏÉçÇøs
• Advertising revenue from advertising in a ºÚÁÏÉçÇø newspaper when the newspaper is run by ºÚÁÏÉçÇøs as a part of educational program
• Acknowledgment of a sponsor or the sponsor’s name or logo, including electronically published material.
• Qualified sponsorship payment when no arrangement or expectation that sponsor will receive any substantial benefit other than the use or acknowledgement of their name or logo

Departments and program administrators are responsible for the initial identification of activities or programs that have the potential to generate unrelated business income. When such activities have been identified, the department must:

• Notify the Office of Tax and Compliance. It is strongly suggested that any new revenue producing programs be reviewed by the Office of Tax Compliance prior to setup.  Although revenue may not be unrelated income, the University must be prepared to demonstrate to the IRS that it has examined each activity that generates revenue and made a valid determination that the activity is or is not "unrelated business income."
• must be completed for each activity with a potential for generating unrelated business income. The completed questionnaire will be used to determine whether the activity should be included in the University's consolidated filed with the IRS annually.
• Track income and related expenses per type of unrelated business activity using a reasonable allocation method.
• Maintain records supporting the purpose and audience of the activity. For tax-exempt organizations with multiple unrelated business activities, UBIT reporting requires separately computing and reporting the income and expenses for each distinct unrelated trade or business, generally identified by a 2-digit NAICS code, on Form 990-T, effectively preventing losses from one unrelated business from offsetting gains from another.

• Works with departments to evaluate activities and determine whether UBIT reporting and tax payments are required. 
• Reviews revenue and expenses related to each UBI activity.
• Completes the Form 990-T tax return for the University and report and pay any taxes associated with unrelated business income activities.

An activity is regularly carried on if it is conducted intermittently year-round or during a significant portion of the season for a seasonal type of business. But an activity is not regularly carried on if it is conducted on a very infrequent basis (once or twice a year) or for a short period without competitive or promotional efforts.

To be substantially related, the business activity must contribute importantly to the accomplishment of a purpose for which the university was granted tax exemption, other than the mere production of income to support such purpose. The primary exempt purpose of a college or university is education and research. 

The IRS regulations define "educational" as including:

• Instruction or training of the individual for the purpose of improving or developing his/her capabilities
• Instruction of the public on subjects useful to the individual and beneficial to the community

It is very important that all unrelated business activities of the ºÚÁÏÉçÇø are reported on the Federal tax return. The Internal Revenue Service can and will assess costly penalties and interest charges for underpayment of taxes.

Generally, fundamental research is excluded from UBIT. However, commercially sponsored research or contract research may be taxable, depending on the terms and outcomes of the agreement.

Departments should keep detailed records of:

• Revenue and expenses for each activity
• Contracts and agreements
• Purpose and frequency of the activity
• Any correspondence related to the activity

Yes, many direct costs related to the operation of unrelated business activities may be deducted against their revenues. Some examples include: compensation of directors, salaries and wages, repairs and maintenance, telecommunications, bad debts, interest, and depreciation. For more information contact you campus accounting office.

Failure to report UBIT may result in penalties, back taxes, interest, and in extreme cases, and most importantly jeopardize the university's tax-exempt status.

UBIT is reported on IRS Form 990-T annually. Estimated quarterly payment may be required. The Tax and Compliance Office files the return and coordinates payment.

• Comprehensive IRS publication explaining what constitutes unrelated business income, applicable exceptions, deductions, and reporting requirements.