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from a trade or business, regularly carried on for profit and not
substantially related to the exempt function of the Museum.
Therefore, respondent contends the leasing income is UBTI under
section 513. The Museum argues that making building spaces and
artwork available to the public is substantially related to its
exempt function. We agree with the Museum.
The income of organizations classified under section
501(c)(3) is generally exempt from taxation. However, section
511(a) imposes a tax on the "unrelated business taxable income"
of section 501(c)(3) organizations. UBTI is defined in section
512(a) as income derived by an organization from any "unrelated
trade or business" regularly carried on by it. Section 513(a)
defines the term "unrelated trade or business" as the conduct of
a trade or business that is not substantially related to the
organization's exempt purpose.
The regulations and case law specify three elements neces-
sary for income to be UBTI: (1) The activity being conducted
must rise to the level of a trade or business, (2) the trade or
business must be regularly carried on by the organization, and
(3) the conduct of the trade or business must not be substan-
tially related to the organization's tax-exempt purpose. Ohio
Farm Bureau Fedn., Inc v. Commissioner, 106 T.C. 222 (1996); sec.
1.513-1(a), Income Tax Regs. These elements are conjunctive, and
4(...continued)
real property under sec. 512(b)(3)(A)(i).
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