Looking for Additional Revenue Streams?

In this down-turned economy, all business entities are looking to enhance or supplement their current revenue sources, and not-for-profit organizations (NPO’s) are no exception.  Because a number of charitable organizations are exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code, the revenue generated by these organizations must be in accordance with its stated mission in order to be tax-exempt. Go back and review the organization’s Form 1023 and the IRS determination letter and verify “why” your organization is exempt from taxation. 

So what if an opportunity presents itself to increase your bottom line that may not fit your mission? Does that mean as a NPO you can not take advantage of this opportunity?  Not necessarily.  The income can be earned, but depending on its source, it may be considered unrelated business income. If the revenue is unrelated, then net income in excess of $1,000 is subject to the excise tax.

What types of property or transactions are specifically exempt or subject to being taxed? Continue reading…

Some unrelated business income is specifically exempt from being taxed, such as certain types of mineral royalty income and income from the sale of merchandise, substantially all of which was donated to the organization. Certain common endeavors that NPO’s may consider which result in UBIT are gift shops, rental of personal property and rental of debt-financed real property. Some NPO’s have also been contacted about leasing property to locate cell phone antennas or even billboards on their property. Before launching into these ventures, give us a call.  We may be able to assist you in structuring the agreement so that the tax implications can be minimized, or at the very least, provide you with information to avoid the shock of having to cough up 35% of your “new found” money.

This area of tax-exempt is complicated and often abused. Contact us for help.