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Spare Small Nonprofits from Unrelated Business Income Rule: CPAs

Nov. 22, 2019, 4:11 PM

Small nonprofits should be excluded from a provision for calculating taxes owed on unrelated business activities that would significantly increase their compliance costs, an accounting group said.

“Section 512(a)(6) makes no exception for small tax-exempt organizations with inadequate resources for maintaining separate detailed records for each trade or business,” the American Institute of CPAs said in a letter released Nov. 22. “Accordingly, the requirement places a disproportionate administrative burden on smaller tax-exempt organizations.”

  • Tax code Section 512(a)(6) requires nonprofits to calculate unrelated business income tax (UBIT) separately for each trade or business. UBIT applies to any activities a nonprofit engages in that aren’t related to the tax-exempt purpose of the organization.
  • AICPA said the rule shouldn’t apply to both larger entities—such as colleges and universities that have the tools to easily track separate unrelated activities—and their smaller counterparts.
  • The group seeks proposed regulations that would provide an exception for tax-exempt organizations reporting less than $100,000 of gross UBI.

To contact the reporter on this story: Allyson Versprille in Washington at aversprille@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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