The University of Georgia Foundation Unrelated Business Income Tax (UBIT) :: Tax Reporting :: Expenditure Control :: UGA Foundation


Unrelated Business Income Tax (UBIT)

POLICY: 8.18.3
Effective Date: 12/10/2004
Last Updated: 12/11/2009

As a 501(c) (3) organization, The University of Georgia Foundation is subject to unrelated business income tax (UBIT). As a general rule, the Foundation does not engage in activities which would be considered as unrelated business income because such activities are not considered part of our tax-exempt purpose by the Internal Revenue Service, and they can result in an additional cost of paying unrelated business income tax (UBIT). Even if an unrelated business activity yields no profit, it must be reported to the Internal Revenue Service. It is the Foundation's policy that we must consult with legal counsel and our tax preparation professionals before any transaction which has elements of unrelated business income is considered. the Foundation will not accept any income deposits that could have been generated from an unrelated business activity that has not been approved by the Director of Finance for the Foundation. The following is included to better help the reader understand UBIT. Please contact the Office of Financial Services for further information.

The Unrelated Business Income Tax as set forth in the Internal Revenue Code applies to income derived from activities that are not in the furtherance of an entity's tax-exempt purpose. The income derived from an unrelated business is referred to as "unrelated business taxable income" (UBTI) and the taxes imposed on UBTI are commonly referred to as "unrelated business income tax" (UBIT). The Internal Revenue Code defines unrelated business income using three basic criteria:

(1) Activity must constitute a trade or business (typically an activity that is carried on with the motive or intent of producing income)

(2) Activity must be carried on regularly (frequency and continuity of the activity can be compared with the amount of time that a taxable entity would spend on the activity)

(3) Activity is not substantially related to (contributes importantly to the accomplishment of) the organizations' exempt purpose

The Internal Revenue Code also gives some general exclusions from unrelated business income that include investment income, royalties, rents from real property not debt-financed, and gain/loss on sale or exchange of property.

Certain types of income are commonly considered to be taxable under UBIT and include advertising income, sale of merchandise, and service income disguised as royalties. Some categories of income that are commonly scrutinized by the IRS include travel tours, corporate sponsorships, and sale of mailing lists.

Please contact the Office of Financial Services Other Income Department before considering any revenue generating activities involving the use of Foundation funds or the deposit to a Foundation fund. Any contracts involving these revenue-generating activities must be reviewed by the Foundation Office and be approved and executed by the Chief Financial Officer of Foundation.