Unrelated Business Income

Some revenue-producing activity in which nonprofits engage is considered commercial activity by the IRS. Even though the income from the activity is used to further the nonprofit’s mission, the income may be taxable as “unrelated business income.” Nonprofits that earn unrelated business income must complete and file Form 990-T annually.

The taxation of revenue generated by various activities is controlled by tax laws and regulations. The National Council of Nonprofits encourages nonprofits to seek advice from a competent tax lawyer or accountant who concentrates in tax-exempt issues if questions arise about the tax treatment of income earned through commercial activity. There are many resources available on the internet that nonprofit leaders can use to familiarize themselves with both the rules and the exceptions. (Exceptions include: sales of donated goods, sales that only occur occasionally, as opposed to sales that are “regularly carried on,” and “royalty” income.) What follows are some resources to get you started:

• Article from About.com: What is Unrelated Business Activity?
• Read about The Basics of Unrelated Business Income Tax from LawForChange.
• IRS guidance on Unrelated Business Income (UBI) and taxation of UBI.
• IRS Publication 598 Tax on Unrelated Business Income of Tax Exempt Organizations.
• Instructions for Form 990-T
• Form 990-T
• Nonprofits that regularly earn unrelated business income must also file estimated returns.
• National Council of Nonprofits' Corporate Sponsorship Toolkit includes resources that explain that income earned by a nonprofit from corporate sponsorships can be taxable if it is considered to be payments for marketing/advertising for the corporate sponsor.