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by such organization of its charitable, educational, or other
purpose or function constituting the basis for its exemption".
The regulations and the case law have delineated the three
elements necessary for income from an activity to be UBTI: (1)
The activity from which the income is derived is a trade or
business, (2) the trade or business is regularly carried on by
the organization, and (3) the conduct of the trade or business is
not substantially related to the organization’s tax-exempt
purpose, other than through the need for or use of the funds it
produces. United States v. American Bar Endowment, 477 U.S. 105,
110 (1986); National Water Well Association v. Commissioner, 92
T.C. 75, 83 (1989); sec. 1.513-1(a), Income Tax Regs. UBTI
exists only if all three elements are found. Veterans of Foreign
Wars, Mich. v. Commissioner, 89 T.C. 7, 19-20 (1987). Petitioner
bears the burden of proving that one or more of the elements
above is lacking. Rule 142(a).
Payments Under the Service Agreement
The first issue we must decide is whether the $292,617
received by petitioner during 1985 pursuant to its service
agreement with Landmark constituted UBTI. There appears to be no
dispute that the services performed by petitioner pursuant to the
service agreement constituted a trade or business and were
regularly carried on. Thus, the focus of our discussion is
limited to whether or not petitioner’s performance of those
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