So, you think you know UBIT? It is no secret that unrelated business income tax (UBIT) is a huge headache, as well as a catastrophe waiting for any nonprofit unaware of it.

In his book “Finance Fundamentals for Nonprofits” Woods Bowman presents a few tidbits about UBIT, some of which are well-known and others that are more obscure. All of them could spell trouble for the unaware. For example:

• A tax-exempt organization can put its logo on credit cards, but promoting them renders the income taxable. An organization can own a parking lot, but leasing it to a parking lot operator could result in taxation of the rental income.
• When leasing its mailing list, an organization may not be involved in controlling how the list is used, participate in profits from use of the list or promote a product of the lessee. Leasing to one’s own subsidiary doesn’t change the tax consequences.
• Corporate sponsorships require extra caution to avoid the appearance of an endorsement of the sponsor’s product or an exhortation to buy it. Income is taxable if it is pegged to the size of the audience or if a sponsorship is exclusive.
• Some issues are particularly relevant to membership associations, such as different classes of dues-paying members and advertising revenue where circulation income exceeds production costs.
• Games of chance cannot be the primary mission of a tax-exempt organization. Income from games of chance is exempt only if state law allows nonprofits to conduct such games.

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