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Unrelated Business Income: A Framework for Governance. Chief Business Officers Meeting July , 2009 Ron Maples, Controller. UBIT.

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unrelated business income a framework for governance

Unrelated Business Income: A Framework for Governance

Chief Business Officers Meeting

July , 2009

Ron Maples, Controller

  • Unrelated business income tax (UBIT) is a federal tax imposed at the normal corporate tax rates on the net profits generated from trades or businesses conducted by tax-exempt organizations, including colleges and universities, that are unrelated to the exempt purposes of the organization.
  • Generally speaking, “outside sales”, sales of goods and services to non-University members, fall into the unrelated category. University members include UT departments, students, faculty, staff, and patients. Note: UT Alumni are not considered University members for the purposes of UBI.
  • The related/unrelated standard applies to how the money is earned, not how it is spent!
recent developments
Recent Developments
  • In an effort to increase voluntary compliance, the IRS, in the fall of 2008, sent some 400 colleges and universities, including UT, Form 14018, Compliance Questionnaire – Colleges and Universities.
  • The due date on the form was extended to February 6, 2009 (original due date was January 2, 2009).
  • The form focused on 3 areas: UBI, executive compensation, and endowments.
  • Lois Lerner, Director of Exempt Organization Division of the IRS, stated at the NACUBO Tax Forum in November of 2008 that the IRS will conduct ‘focused exams’ as a result of the compliance questionnaires, reviewing only the questions concerning UBIT and executive compensation. Exams should begin by late fall of 2009.
irs questionnaire ubit focus to view visit irs gov pub irs tege sample cucp questionnaire pdf
IRS Questionnaire: UBIT Focus(To view visit: irs.gov/pub/irs-tege/sample_cucp_questionnaire.pdf)
  • As it relates to UBIT, the questionnaire listed 44 potential UBI activities and asked each school:
  • Whether it participates in the activity
  • Whether it treats the activity as UBI; must select explanation code for a ‘no UBI’ or ‘part UBI’ answer
  • Of those activities participated in, was there a loss 3 out of the last 5 years? Yes answer may be indicative of lack of profit motive and any loss deduction potentially subject to IRS challenge upon audit.

Common UBI areas include bookstore operations, dormitory rentals, advertising income, travel tours, parking lots, etc.

governance and tax compliance
Governance and Tax Compliance
  • The University has been filing the Exempt Organization Business Income Tax Return (Form 990-T) since 1992 to report UBIT.
  • In response to the increased scrutiny of higher education business activities by the IRS, we are providing the following tools to:
  • Assist departments in complying with the UBI rules,
  • Encourage consistent tax treatment of similar activities conducted across the UT System,
  • Aid The Controller’s Office in managing the risk of non-compliance, and
  • Be prepared in case of an audit.
framework identifying ubi
Framework: Identifying UBI
  • UBTI Fiscal Policy

-Provides framework for reporting unrelated business taxable income

  • UBI Review Guidelines

-Provides in-depth discussion of UBI and gives statutory authority of each provision

  • UBI Flowchart

-Visual depiction of the UBI identification process

framework documenting ubi
Framework: Documenting UBI
  • Non-financial Questionnaire

-To be completed by each department that has revenue generating activities. The form is your support/defense on the position you take regarding whether or not the activity is related. The form will also assist us to gauge compliance in sales tax, foreign activities and nexus areas.

  • CBO Transmittal Letter

-To verify that the CBOs are aware of and agree with the tax positions taken by their units/departments.

framework reporting ubi
Framework: Reporting UBI
  • Financial Worksheet

-To report unrelated business income and expenses for inclusion on the annual consolidated 990-T

  • UBI rules allows a deduction for charitable contributions the University makes to other charities. Please notify us if you have any expenses that may qualify.
  • All documents can be found on the Controller’s website in the Tax Section @http://controller.tennessee.edu/
questionnaire schedule
Questionnaire Schedule
  • A completed questionnaire should be submitted to the Controller’s Office on all income generating activities (except research) for FY2010. Thereafter, a questionnaire should only be completed if the activity changes or a new activity is started.

FY2010 Schedule(subsequent questionnaires due by date on form)

December 31, 2009February 28, 2010May 31, 2010

  • UT Martin UT Chattanooga UT Knoxville
  • UT Memphis UT Ag Campus
  • UT Space Institute UT Institute for Public Service
training for more information
Training/For more information
  • A UBI training session will be conducted to provide an overview of the basic concepts, exceptions and exclusions to unrelated business income. An email will be sent when the date is finalized.
  • Helpful resources:

-Visit www.irs.gov Publication 598

-Bertrand Harding’s The Tax Law of Colleges and Universities, 3rd Edition

-Melissa Johnson, Controller’s Office, johnsonm@tennessee.edu, 974-2493

-Ron Maples, Controller’s Office, maples00@tennessee.edu, 974-2493