Unrelated Business Income Tax

Purpose

The University of Iowa must annually file Form 990-T, Exempt Organization Business Income Tax Return, if we have gross income from an unrelated trade or business of $1,000 or more each fiscal year.

What is unrelated business income?

According to the Internal Revenue Code, unrelated trade or business income is the gross income derived from any trade or business that is regularly carried on, and not substantially related to, the University’s exempt purpose of education, research and public service. Taxable income can be reduced by both direct and indirect costs which bear a “proximate and primary" relationship to the activity generating the income. Again, this includes reasonable allocations of indirect costs.

How do you determine if you have unrelated business income?

First, in order to be taxable, the activity generating the income must meet all three criteria:

The activity must be a trade or business
The activity must be regularly carried on, and
The activity must not be substantially related the University’s tax exempt purpose.

It is important that each activity be reviewed on a case by case basis. Determining whether or not the income from an activity is taxable can be difficult. The tax code has many exceptions and the rules are extensive. We encourage you to contact us so that we can work with you to make a final determination of taxable activity.

What are the exceptions to UBIT?

There are several IRS exceptions to UBIT. Below is a partial list of common exceptions:

Interest, dividends and annuities
Capital gains
Royalties
Business conducted by volunteers
Sale of donated merchandise
Qualified sponsorship payments
Rent from real property
Income from research*

*The IRS has ruled some activities carried on incident to commercial or industrial operations may not be considered research. Therefore, a determination needs to be made on a case by case basis as to whether the activity contributes to one or more of the University’s nonprofit mission. (IRS Code 511-513)

What are some common examples of University activities which are taxable?

Golf Course
Hotel
Catering
Bookstore (public sales)
Off campus computing services
Television production services
Concessions
Equipment rental to external entities
Public fees from recreation services

What are departmental responsibilities for submitting UBIT information?

Each department is responsible for submitting information to Accounting and Financial Reporting each fiscal year related to all new activities or changes in scope of operations of existing activities with a potential for generating unrelated business income (loss) for a determination of whether the activities conducted by the institutions are unrelated business income. Departments must complete the attached questionnaire, Controller Entrepreneurial Questionnaire, prior to August 31 and return to contact person below.
Each department is responsible for submitting to Accounting and Financial Reporting information and data each fiscal year related to all activities determined to generate unrelated business income (loss) for inclusion in Form 990-T, Exempt Organization Business Income Tax Return. Departments must complete the attached template, by October 1 and return to contact person below.

Contacts

Tom Peifer, Director of Tax
email: Thomas-PeiferIII@uiowa.edu or phone: (319) 384-1497