Question

Fish, Inc., an exempt organization, reports unrelated business income of $500,000 (before any charitable contribution deduction). During the year, Fish makes charitable contributions of $54,000, of which $38,000 is associated with the unrelated trade or business. 

a. Calculate Fish’s unrelated business taxable income (UBTI). 

b. Express your computation in part (a) as a Microsoft Excel formula. 

c. Assume instead that the charitable contributions are $41,000, of which $38,000 is associated with the unrelated trade or business. Calculate the UBTI.

 

 

Answer 1

a)

Unrelated Business income of Fish company = $500,000

Charitable contributions = $54,000 of which $38000 is unrelated to trade or business

So, now the charitable contributions deduction (CCD)

= [$54,000 - $38,000] =$ 16,000

 

Now,

The Unrelated Business income =

[$500,000-$16,000] = $ 484,000

Again the Unrelated Business income tax rate is 34% as per the corporate tax rate.

So, the Unrelated Business Taxable income = 34% of $484,000

Or, $484,000 *34% = $164560

 

b)

DEDUCT=UBI_BEFORE-1000-MIN(CHAR,(UBI_BEFORE*.1))

By substituting above formula we have in part A

UBI = $500,000 (before CCD) and $484,000(after CCD)

 

SO,

$500,000-$1000-MIN($54,000, - {MIN STANDS FOR T HE SHOULD NOT BE GREATER IN EXCEL)

($484,000*1)) = $16,000

 

c)

Given that assume the charitable contributions are $41000, of which $38,000 is unrelated to trade or business.

 

In this case as like above solution a

Charitable contributions deduction = [$41,000 - $38,000] = $3,000

 

So, The Unrelated Business income = [$500,000-$3,000] =$497,000

Tax rate is 34%

 

So, Unrelated Business taxable income = $497,000*34% = $168980

a)

Unrelated Business income of Fish company = $500,000

Charitable contributions = $54,000 of which $38000 is unrelated to trade or business

So, now the charitable contributions deduction (CCD)

= [$54,000 - $38,000] =$ 16,000