When is the unrelated business tax assessed on an exempt organization

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The unrelated business tax is assessed on an exempt organisation as follows:

Unrelated business taxable income (UBIT) is income regularly generated by a tax-exempt entity by means of taxable activities. This income is not related to the main function of the entity, but is needed to generate a small portion of income.

The internal revenue code (IRC) Section 501 grants tax exempt status to a variety tax-exempt and mutually beneficial organisation.

However, an organisation i.e. recognised as a tax-exempt entity, such as a non-profit or educational organisations, may be liable for tax if it engages in and derives income from unrelated business activity.

Some transactions that may be considered unrelated business activity include:

1. Buying and selling a significant number of real estate properties in a year

2. Using margin on a stock purchase

3. Making multiple private loans with in a given year.

Unrelated business income taxes to be incurred, all three elements must be present:

(a). Trade or Business.

(b) Regularly Carried On.

ekkarill92 answered 7 months ago

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