UBIT could be next compliance check area for IRS

Feb 07, 2012

Aug 31, 2011

The IRS’ next compliance check on the tax-exempt sector may be directed at unrelated business income taxes (UBIT), according to a report.

While not a formal audit, the IRS has been using compliance check questionnaires to gather information and promote voluntary compliance with different segments of the tax-exempt community. Recent compliance checks have focused on tax-exempt hospitals and colleges and universities.

The IRS defines unrelated business income as revenue generated from activities that are not substantially related to a tax-exempt organization’s mission or exempt purpose. UBIT rules impose an income tax on an exempt organization’s net income derived from unrelated business activities.

UBIT is reported by tax-exempt organizations on the Form 990-T, and recently the IRS has questioned the accuracy of UBIT reporting by tax-exempt organizations. UBIT was an area of focus on recent IRS questionnaires to colleges and universities, particularly as it relates to college athletics.