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agreement constituted UBTI, we must first decide whether the
income was derived from a trade or business.
Section 513(c) defines the term “trade or business” as any
activity that is carried on for the production of income from the
sale of goods or the performance of services. The regulations
provide that, as a general rule, an activity that qualifies as a
trade or business under section 162 also qualifies as a trade or
business under section 513. Sec. 1.513-1(b), Income Tax Regs.
In setting out the test for a trade or business under section
162, the Supreme Court has stated:
Of course, not every income-producing and profit-
making endeavor constitutes a trade or business. The
income tax law, almost from the beginning, has
distinguished between a business or trade, on the one
hand, and “transactions entered into for profit but not
connected with . . . business or trade,” on the other.
See Revenue Act of 1916, � 5(a), Fifth, 39 Stat. 759.
Congress “distinguished the broad range of income or
profit producing activities from those satisfying the
narrow category of trade or business.” Whipple v.
Commissioner, 373 U.S., at 197. We accept the fact
that to be engaged in a trade or business, the taxpayer
must be involved in the activity with continuity and
regularity and that the taxpayer’s primary purpose for
engaging in the activity must be for income or profit.
A sporadic activity, a hobby, or an amusement diversion
does not qualify. [Commissioner v. Groetzinger, 480
U.S. 23, 35 (1987); emphasis added.]
Because the purpose of the unrelated business income tax was to
prevent tax-exempt organizations from unfairly competing with
businesses whose earnings were taxed, United States v. American
Bar Endowment, 477 U.S. at 114, we have considered the potential
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