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Section 511(a) imposes a tax on the unrelated business
taxable income of certain tax-exempt organizations, including
section 501(c)(3) organizations. Section 512(a)(1) defines
"unrelated business taxable income" as gross income derived by
any organization from any unrelated trade or business, regularly
carried on by it, less allowable deductions.
Section 513(a) defines the term "unrelated trade or
business" as,
in the case of any organization subject to the tax imposed
by section 511, any trade or business the conduct of which
is not substantially related (aside from the need of such
organization for income or funds or the use it makes of the
profits derived) to the exercise or performance by such
organization of its charitable, educational, or other
purpose or function constituting the basis for its exemption
under section 501 * * * [Emphasis added.]
Section 513(a)(1) through (3) contains exceptions to the above
general rule, but none of the exceptions are applicable in this
case. Therefore, income generated from the pickle card sales
must be considered UBTI if:
(1) it is income from trade or business, (2) such trade or
business is regularly carried on by the organization, and
(3) the conduct of such trade or business is not
substantially related (other than through the production of
funds) to the organization's performance of its exempt
functions. [Sec. 1.513-1(a), Income Tax Regs.; emphasis
added.]
For purposes of section 513, the term "trade or business"
has "the same meaning it has in section 162, and generally
includes any activity carried on for the production of income
from the sale of goods or performance of services." Sec. 1.513-
1(b), Income Tax Regs. The term "trade or business" is not
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Last modified: May 25, 2011