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990-T, Exempt Organization Business Income Tax Return, for each
of the years in issue.
OPINION
Section 511(a)(1) imposes the unrelated business income tax
(UBIT) on the unrelated business taxable income (UBTI) of certain
tax-exempt organizations. Section 512 defines UBTI as follows:
SEC. 512. UNRELATED BUSINESS TAXABLE INCOME.
(a) Definition.--For purposes of this title--
(1) General Rule.--Except as otherwise
provided in this subsection, the term "unrelated
business taxable income" means the gross income
derived by any organization from any unrelated
trade or business (as defined in section 513)
regularly carried on by it, less the deductions
allowed by this chapter which are directly
connected with the carrying on of such trade or
business, both computed with the modifications
provided in subsection (b).
Accordingly, income is UBTI if it arises from a regularly
carried-on trade or business that is not substantially related to
the organization's tax-exempt purpose. See sec. 1.513-1(a)
Income Tax Regs. Royalties, however, are excluded from UBTI
pursuant to section 512(b)(2).5 See Sierra Club, Inc. v.
5 Sec. 512(b) provides:
SEC. 512(b). Modifications.--The modifications
referred to in subsection (a) are the following:
* * * * * * *
(2) There shall be excluded all
royalties (including overriding
royalties) whether measured by
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