Many believe that their nonprofit’s 501(c)(3) tax-exempt status automatically and perpetually renders their organization’s activity tax-exempt. However, this is not necessarily true. Certain tax-exempt organizations are liable for tax if they have what is referred to as unrelated business taxable income (UBTI).
UBTI for a 501(c)(3) organization generally refers to any income earned by the organization that is UNRELATED to its tax-exempt purpose. This seems like an easy determination, right? Not so fast. Generating income to support the tax-exempt purpose of the organization is not enough in and of itself to show a relationship to its purpose! There is no set threshold that makes this determination; it is highly organization-specific. This is where it can get tricky. However tricky it may be, it is VERY IMPORTANT. Why?
Even though a 501(c)(3) is generally not taxed on its income, UBTI of a 501(c)(3) IS subject to tax. More importantly, if a 501(c)(3) has too much unrelated business activity, it may lose its 501(c)(3) status!!
Strict compliance with various laws and regulations is essential to maintaining 501(c)(3) tax-exempt status. Do not jeopardize the great work that you do! Contact C&G today to assist you!
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