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Unrelated Business Income Tax

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For each of the following organizations, determine the amount of the UBIT.

a. AIDS, Inc., an exempt charitable organization that provides support for individuals with AIDS, operates a retail medical supply store open to the general public. The net income of the store, before any Federal income taxes, is $305,000.

b. The local Episcopal Church operates a retail gift shop. The inventory consists of the typical items sold by commercial gift shops in the city. The director of the gift shop estimates that 80% of the gift shop sales are to tourists and 20% are to church members. The net income of the gift shop, before the salaries of the three gift shop employees and any Federal income taxes, is $300,000. The salaries of the employees total $80,000.

c. Education, Inc., a private university, has vending machines in the student dormitories and academic buildings on campus. In recognition of recent tuition increases, the university has adopted a policy of merely trying to recover its costs associated with the vending machine activity, before any Federal income taxes, is $75,000.

d. Worn, Inc., an exempt organization, provides food for the homeless. It operates a thrift store that sells used clothing to the general public. The thrift shop is staffed by four salaried employees. All of the clothes it sells are received as contributions. The $100,000 profit generated for the year by the thrift shop is used in Worn's mission of providing food to the homeless.

e. Small, Inc., an exempt organization, has gross unrelated business income of $900 and unrelated business expense of $400.

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Solution Summary

The unrelated business income tax are examined.

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Anna, 108710

Assuming the UBI is earned for 2010

Situation A
UBIT = $22,250 + ($305,000 - $100,000)*39% = $102,200

Situation B
The ...

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