Publication 557 |
2001 Tax Year |
Unrelated Business Income Tax Return
Even though an organization is recognized as tax exempt, it still
may be liable for tax on its unrelated business income. Unrelated
business income is income from a trade or business, regularly carried
on, that is not substantially related to the charitable, educational,
or other purpose that is the basis for the organization's exemption.
An exempt organization that has $1,000 or more of gross income from an
unrelated business must file Form 990-T.
The obligation to file Form 990-T is in addition to the
obligation to file the annual information return, Form 990,
990-EZ, or 990-PF.
Estimated tax.
Exempt organizations must make quarterly payments of estimated tax
on unrelated business income. An organization must make estimated tax
payments if it expects its tax for the year to be $500 or more.
Travel tour programs.
Travel tour activities that are a trade or business are an
unrelated trade or business if the activities are not substantially
related to the purpose to which tax exemption was granted to the
organization.
Whether travel tour activities conducted by an organization are
substantially related to the organization's tax exempt purpose is
determined by looking at all the relevant facts and circumstances,
including, but not limited to, how a travel tour is developed,
promoted, and operated.
Example.
ABC, a university alumni association, is tax exempt as an
educational organization under section 501(c)(3) of the Code. As part
of its activities, ABC operates a travel tour program. The program is
open to all current members of ABC and their guests. ABC works with
travel agents to schedule approximately ten tours annually to various
destinations around the world. Members of ABC pay $1,000 to XYZ Travel
Agency to participate in a tour. XYZ pays ABC a per person fee for
each participant. Although the literature advertising the tours
encourages ABC members to continue their lifelong learning by joining
the tours, and a faculty member of ABC's related university frequently
joins the tour as a guest of the alumni association, none of the tours
include any scheduled instruction or curriculum related to the
destinations being visited. The travel tours made available to ABC's
members do not contribute importantly to the accomplishment of ABC's
educational purpose. Rather, ABC's program is designed to generate
revenues for ABC by regularly offering its members travel services.
Therefore, ABC's tour program is an unrelated trade or business.
For additional information on unrelated business income, see
Publication 598.
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