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Ezform Publication 517 - Additional Material Prev Up Next Home More Online Publications
Forms and Publications About Your Appeal Rights
Offer in Compromise, Form 656-B
A Form 656-B is used to make an offer to compromise your liability for payment of less than the full amount owed.
Claim for Refund and Request for Abatement, Form 843
A Form 843 is submitted to claim a refund (or abatement) of certain overpaid (or over-assessed) taxes, interest, penalties, and additions to tax.
Proposed Assessment of Trust Fund Recovery Penalty, Form 2751
A Form 2751 is used to show the corporate liability data for a proposed trust fund recovery penalty assessment.
Qualifying Children Residency Statement, Form 8836
A Form 8836 is filed with the IRS to show that you and your qualifying child meet the residency test for the earned income credit (EIC).
Collection Appeal Request, Form 9423
A Form 9423 is used to appeal a collection action. Using this form, you may request an appeal of the following actions: notice of federal tax lien, levy, seizure, or termination of an installment agreement.
Request for Appeals Review, Form 12203
This form can be used to request an Appeals review of a proposed IRS adjustment of $25,000 or less per tax year or period.
Request for a Collection Due Process Hearing, Form 12153
A Form 12153 is used to request a collection due process hearing under IRC 6320 and IRC 6330.
Statement of Disagreement, Form 12509
You can use this form to explain why you disagree with the Internal Revenue Service (IRS) Determination concerning relief from joint and several liability for a joint return under Internal Revenue Code sections 6013(e), 6015(b), 6015(c), or 6015(f) in the letter you received with this form.
Your Rights As a Taxpayer, Publication 1
Explains your rights as a taxpayer and includes information on the examination and collection processes.
Overview of the Appeals Process Brochure, Publication 4227
Explains the mission, overview, and expectations of the appeal process to the taxpayers.
Appeals - Introduction to Alternative Dispute Resolution, Publication 4167
Describes the Fast Track Mediation, Fast Track Settlement and Post-Appeals Mediation programs.
Your Appeal Rights and How to Prepare a Protest If You Don't Agree, Publication 5
Explains your appeal rights and offers information on how to protest an Internal Revenue Agent's examination report.
Collection Appeal Rights, Publication 1660
Explains your appeal rights related to the Collection Due Process & Collection Appeal Program. It also explains collection issues that can be appealed and how to appeal them.
What You Should Know About The IRS Collection Process, Publication 594
Explains what steps the IRS may take to collect overdue taxes. It includes a summary of your rights and responsibilities for paying federal taxes.
The Examination Process, Publication 3498 and 3498A
These publications explain the audit process from the initiation of the examination through the overview of the collection process, including appeals options.
Page Last Reviewed or Updated: 07-Jan-2014
Ezform 3. Ezform Unrelated Trade or Business Table of Contents Selling of products of exempt functions. Ezform Dual use of assets or facilities. Ezform Exploitation of exempt functions. Ezform ExamplesExceptions. Ezform Excluded Trade or Business ActivitiesQualified sponsorship payment. Ezform Advertising. Ezform Exception for contingent payments. Ezform Exception for periodicals. Ezform Exception for conventions and trade shows. Ezform Legal definition. Ezform Legal where played. Ezform No for-profit games where played. Ezform Unrelated business income. Ezform Unrelated business income is the income from a trade or business regularly conducted by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity. Ezform Certain trade or business activities are not treated as an unrelated trade or business. Ezform See Excluded Trade or Business Activities, later. Ezform Trade or business. Ezform The term “trade or business” generally includes any activity conducted for the production of income from selling goods or performing services. Ezform An activity does not lose its identity as a trade or business merely because it is conducted within a larger group of similar activities that may or may not be related to the exempt purposes of the organization. Ezform For example, the regular sale of pharmaceutical supplies to the general public by a hospital pharmacy does not lose its identity as a trade or business, even though the pharmacy also furnishes supplies to the hospital and patients of the hospital in accordance with its exempt purpose. Ezform Similarly, soliciting, selling, and publishing commercial advertising is a trade or business even though the advertising is published in an exempt organization's periodical that contains editorial matter related to the organization's exempt purpose. Ezform Regularly conducted. Ezform Business activities of an exempt organization ordinarily are considered regularly conducted if they show a frequency and continuity, and are pursued in a manner similar to comparable commercial activities of nonexempt organizations. Ezform For example, a hospital auxiliary's operation of a sandwich stand for 2 weeks at a state fair would not be the regular conduct of a trade or business. Ezform The stand would not compete with similar facilities that a nonexempt organization would ordinarily operate year-round. Ezform However, operating a commercial parking lot every Saturday, year-round, would be the regular conduct of a trade or business. Ezform Not substantially related. Ezform A business activity is not substantially related to an organization's exempt purpose if it does not contribute importantly to accomplishing that purpose (other than through the production of funds). Ezform Whether an activity contributes importantly depends in each case on the facts involved. Ezform In determining whether activities contribute importantly to the accomplishment of an exempt purpose, the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt function that they intend to serve. Ezform For example, to the extent an activity is conducted on a scale larger than is reasonably necessary to perform an exempt purpose, it does not contribute importantly to the accomplishment of the exempt purpose. Ezform The part of the activity that is more than needed to accomplish the exempt purpose is an unrelated trade or business. Ezform Also in determining whether activities contribute importantly to the accomplishment of an exempt purpose, the following principles apply. Ezform Selling of products of exempt functions. Ezform Ordinarily, selling products that result from the performance of exempt functions is not an unrelated trade or business if the product is sold in substantially the same state it is in when the exempt functions are completed. Ezform Thus, for an exempt organization engaged in rehabilitating handicapped persons (its exempt function), selling articles made by these persons as part of their rehabilitation training is not an unrelated trade or business. Ezform However, if a completed product resulting from an exempt function is used or exploited in further business activity beyond what is reasonably appropriate or necessary to dispose of it as is, the activity is an unrelated trade or business. Ezform For example, if an exempt organization maintains an experimental dairy herd for scientific purposes, the sale of milk and cream produced in the ordinary course of operation of the project is not an unrelated trade or business. Ezform But if the organization uses the milk and cream in the further manufacture of food items such as ice cream, pastries, etc. Ezform , the sale of these products is an unrelated trade or business unless the manufacturing activities themselves contribute importantly to the accomplishment of an exempt purpose of the organization. Ezform Dual use of assets or facilities. Ezform If an asset or facility necessary to the conduct of exempt functions is also used in commercial activities, its use for exempt functions does not, by itself, make the commercial activities a related trade or business. Ezform The test, as discussed earlier, is whether the activities contribute importantly to the accomplishment of exempt purposes. Ezform For example, a museum has a theater auditorium designed for showing educational films in connection with its program of public education in the arts and sciences. Ezform The theater is a principal feature of the museum and operates continuously while the museum is open to the public. Ezform If the organization also operates the theater as a motion picture theater for the public when the museum is closed, the activity is an unrelated trade or business. Ezform For information on allocating expenses for the dual use of assets or facilities, see Deductions in chapter 4. Ezform Exploitation of exempt functions. Ezform Exempt activities sometimes create goodwill or other intangibles that can be exploited in a commercial way. Ezform When an organization exploits such an intangible in commercial activities, the fact that the income depends in part upon an exempt function of the organization does not make the commercial activities a related trade or business. Ezform Unless the commercial exploitation contributes importantly to the accomplishment of the exempt purpose, the commercial activities are an unrelated trade or business. Ezform For the treatment of expenses attributable to the exploitation of exempt activities, see Deductions in chapter 4. Ezform Examples The following are examples of activities that were determined to be (or not to be) unrelated trades or businesses using the definitions and principles just discussed. Ezform Sales commissions. Ezform An agricultural organization, whose exempt purposes are to promote better conditions for cattle breeders and to improve the breed generally, engages in an unrelated trade or business when it regularly sells cattle for its members on a commission basis. Ezform Artists' facilities. Ezform An organization whose exempt purpose is to stimulate and foster public interest in the fine arts by promoting art exhibits, sponsoring cultural events, and furnishing information about fine arts leases studio apartments to artist tenants and operates a dining hall primarily for these tenants. Ezform These two activities do not contribute importantly to accomplishing the organization's exempt purpose. Ezform Therefore, they are unrelated trades or businesses. Ezform Membership list sales. Ezform An exempt educational organization regularly sells membership mailing lists to business firms. Ezform This activity does not contribute importantly to the accomplishment of the organization's exempt purpose and therefore is an unrelated trade or business. Ezform Also see Exchange or rental of member lists under Excluded Trade or Business Activities, later. Ezform Hospital facilities. Ezform An exempt hospital leases its adjacent office building and furnishes certain office services to a hospital-based medical group for a fee. Ezform The group provides all diagnostic and therapeutic procedures to the hospital's patients and operates the hospital's emergency room on a 24-hour basis. Ezform The leasing activity is substantially related to the hospital's exempt purpose and is not an unrelated trade or business. Ezform The hospital also operates a gift shop patronized by patients, visitors making purchases for patients, and employees; a cafeteria and coffee shop primarily for employees and medical staff; and a parking lot for patients and visitors only. Ezform These activities are also substantially related to the hospital's exempt purpose and do not constitute unrelated trades or businesses. Ezform Book publishing. Ezform An exempt organization engages primarily in activities that further its exempt purposes. Ezform It also owns the publication rights to a book that does not relate to any of its exempt purposes. Ezform The organization exploits the book in a commercial manner by arranging for printing, distribution, publicity, and advertising in connection with the sale of the book. Ezform These activities constitute a trade or business regularly conducted. Ezform Because exploiting the book is unrelated to the organization's exempt purposes (except for the use of the book's profits), the income is unrelated business income. Ezform However, if the organization transfers publication rights to a commercial publisher in return for royalties, the royalty income received will not be unrelated business income. Ezform See Royalties under Exclusions in chapter 4. Ezform School handicraft shop. Ezform An exempt vocational school operates a handicraft shop that sells articles made by students in their regular courses of instruction. Ezform The students are paid a percentage of the sales price. Ezform In addition, the shop sells products made by local residents who make articles at home according to the shop's specifications. Ezform The shop manager periodically inspects the articles during their manufacture to ensure that they meet desired standards of style and quality. Ezform Although many local participants are former students of the school, any qualified person may participate in the program. Ezform The sale of articles made by students does not constitute an unrelated trade or business, but the sale of products made by local residents is an unrelated trade or business and is subject to unrelated business income tax. Ezform School facilities. Ezform An exempt school has tennis courts and dressing rooms that it uses during the regular school year in its educational program. Ezform During the summer, the school operates a tennis club open to the general public. Ezform Employees of the school run the club, including collecting membership fees and scheduling court time. Ezform Another exempt school leases the same type of facilities to an unrelated individual who runs a tennis club for the summer. Ezform The lease is for a fixed fee that does not depend on the income or profits derived from the leased property. Ezform In both situations, the exempt purpose is the advancement of education. Ezform Furnishing tennis facilities in the manner described does not further that exempt purpose. Ezform These activities are unrelated trades or businesses. Ezform However, in the second situation the income derived from the leasing of the property is excluded from unrelated business taxable income as rent from real property. Ezform See Rents under Exclusions in chapter 4. Ezform Services provided with lease. Ezform An exempt university leases its football stadium during several months of the year to a professional football team for a fixed fee. Ezform Under the lease agreement, the university furnishes heat, light, and water and is responsible for all ground maintenance. Ezform It also provides dressing room, linen, and stadium security services for the professional team. Ezform Leasing of the stadium is an unrelated trade or business. Ezform In addition, the substantial services furnished for the convenience of the lessee go beyond those usually provided with the rental of space for occupancy only. Ezform Therefore, the income from this lease is rent from real property and unrelated business taxable income. Ezform Broadcasting rights. Ezform An exempt collegiate athletic conference conducts an annual competitive athletic game between its conference champion and another collegiate team. Ezform Income is derived from admission charges and the sale of exclusive broadcasting rights to a national radio and television network. Ezform An athletic program is considered an integral part of the educational process of a university. Ezform The educational purposes served by intercollegiate athletics are identical whether conducted directly by individual universities or by their regional athletic conference. Ezform Also, the educational purposes served by exhibiting a game before an audience that is physically present and exhibiting the game on television or radio before a much larger audience are substantially similar. Ezform Therefore, the sale of the broadcasting rights contributes importantly to the accomplishment of the organization's exempt purpose and is not an unrelated trade or business. Ezform In a similar situation, an exempt organization was created as a national governing body for amateur athletes to foster interest in amateur sports and to encourage widespread public participation. Ezform The organization receives income each year from the sale of exclusive broadcasting rights to an independent producer, who contracts with a commercial network to broadcast many of the athletic events sponsored, supervised, and regulated by the organization. Ezform The broadcasting of these events promotes the various amateur sports, fosters widespread public interest in the benefits of the organization's nationwide amateur program, and encourages public participation. Ezform The sale of the rights and the broadcasting of the events contribute importantly to the organization's exempt purpose. Ezform Therefore, the sale of the exclusive broadcasting rights is not an unrelated trade or business. Ezform Yearbook advertising. Ezform An exempt organization receives income from the sale of advertising in its annual yearbook. Ezform The organization hires an independent commercial firm, under a contract covering a full calendar year, to conduct an intensive advertising solicitation campaign in the organization's name. Ezform This firm is paid a percentage of the gross advertising receipts for selling the advertising, collecting from advertisers, and printing the yearbook. Ezform This advertising activity is an unrelated trade or business. Ezform Pet boarding and grooming services. Ezform An exempt organization, organized and operated for the prevention of cruelty to animals, receives unrelated business income from providing pet boarding and grooming services for the general public. Ezform These activities do not contribute importantly to its purpose of preventing cruelty to animals. Ezform Museum eating facilities. Ezform An exempt art museum operates a dining room, a cafeteria, and a snack bar for use by the museum staff, employees, and visitors. Ezform Eating facilities in the museum help to attract visitors and allow them to spend more time viewing the museum's exhibits without having to seek outside restaurants at mealtime. Ezform The eating facilities also allow the museum staff and employees to remain in the museum throughout the day. Ezform Thus, the museum's operation of the eating facilities contributes importantly to the accomplishment of its exempt purposes and is not unrelated trade or business. Ezform Halfway house workshop. Ezform A halfway house organized to provide room, board, therapy, and counseling for persons discharged from alcoholic treatment centers also operates a furniture shop to provide full-time employment for its residents. Ezform The profits are applied to the operating costs of the halfway house. Ezform The income from this venture is not unrelated trade or business income because the furniture shop contributes importantly to the organization's purpose of aiding its residents' transition from treatment to a normal and productive life. Ezform Travel tour programs. Ezform Travel tour activities that are a trade or business are an unrelated trade or business if the activities are not substantially related to the purpose for which tax exemption was granted to the organization. Ezform Example 1. Ezform A tax-exempt university alumni association provides a travel tour program for its members and their families. Ezform The organization works with various travel agencies and schedules approximately ten tours a year to various places around the world. Ezform It mails out promotional material and accepts reservations for fees paid by the travel agencies on a per-person basis. Ezform The organization provides an employee for each tour as a tour leader. Ezform There is no formal educational program conducted with these tours, and they do not differ from regular commercially operated tours. Ezform By providing travel tours to its members, the organization is engaging in a regularly conducted trade or business. Ezform Even if the tours it offers support the university, financially and otherwise, and encourage alumni to do the same, they do not contribute importantly to the organization's exempt purpose of promoting education. Ezform Therefore, the sale of the travel tours is an unrelated trade or business. Ezform Example 2. Ezform A tax-exempt organization formed for the purpose of educating individuals about the geography and the culture of the United States provides study tours to national parks and other locations within the United States. Ezform These tours are conducted by teachers and others certified by the state board of education. Ezform The tours are primarily designed for students enrolled in degree programs at state educational institutions but are open to all who agree to participate in the required study program associated with the tour taken. Ezform A tour's study program consists of instruction on subjects related to the location being visited on the tour. Ezform Each tour group brings along a library of material related to the subjects being studied on the tour. Ezform During the tour, 5 or 6 hours per day are devoted to organized study, preparation of reports, lectures, instruction, and recitation by the students. Ezform Examinations are given at the end of each tour. Ezform The state board of education awards academic credit for tour participation. Ezform Because these tours are substantially related to the organization's exempt purpose, they are not an unrelated trade or business. Ezform Insurance programs. Ezform An organization that acts as a group insurance policyholder for its members and collects a fee for performing administrative services is normally carrying on an unrelated trade or business. Ezform Exceptions. Ezform Organizations whose exempt activities may include the provision of insurance benefits, such as fraternal beneficiary societies, voluntary employees beneficiary associations, and labor organizations, are generally exceptions to this rule. Ezform Magazine publishing. Ezform An association of credit unions with tax-exempt status as a business league publishes a consumer-oriented magazine four times a year and makes it available to member credit unions for purchase. Ezform By selling a magazine to its members as a promotional device, the organization furnishes its members with a regular commercial service they can use in their own operations. Ezform This service does not promote the improvement of business conditions of one or more lines of business, which is the exempt purpose of a business league. Ezform Since the activity does not contribute importantly to the organization's exempt function, it is an unrelated trade or business. Ezform Directory of members. Ezform A business league publishes an annual directory that contains a list of all its members, their addresses, and their area of expertise. Ezform Each member has the same amount of space in the directory, and its format does not emphasize the relative importance or reputation of any member. Ezform The directory contains no commercial advertisement and is sold only to the organization's members. Ezform The directory facilitates communication among the members and encourages the exchange of ideas and expertise. Ezform Because the directory lists the members in a similar noncommercial format without advertising and is not distributed to the public, its sale does not confer private commercial benefits on the members. Ezform The sale of the directory does contribute importantly to the organization's exempt purpose and is not an unrelated trade or business. Ezform This directory differs from the publication discussed next because of its noncommercial characteristics. Ezform Sales of advertising space. Ezform A national association of law enforcement officials publishes a monthly journal that contains articles and other editorial material of professional interest to its members. Ezform The journal is distributed without charge, mainly to the organization's members. Ezform The organization sells advertising space in the journal either for conventional advertising or to merely identify the purchaser without a commercial message. Ezform Some of the noncommercial advertising identifies the purchaser in a separate space, and some consists of listings of 60 or more purchasers per page. Ezform A business firm identified in a separate space is further identified in an Index of Advertisers. Ezform The organization solicits advertising by personal contacts. Ezform Advertising from large firms is solicited by contacting their chief executive officer or community relations officer rather than their advertising manager. Ezform The organization also solicits advertising in form letters appealing for corporate and personal contributions. Ezform An exempt organization's sale of advertising placed for the purchaser's commercial benefit is a commercial activity. Ezform Goodwill derived by the purchaser from being identified as a patron of the organization is usually considered a form of commercial benefit. Ezform Therefore, advertising in an exempt organization's publication is generally presumed to be placed for the purchaser's commercial benefit, even if it has no commercial message. Ezform However, this presumption is not conclusive if the purchaser's patronage would be difficult to justify commercially in view of the facts and circumstances. Ezform In that case, other factors should also be considered in determining whether a commercial benefit can be expected. Ezform Those other factors include: The normal manner in which the publication is circulated; The territorial scope of the circulation; The extent to which its readers, promoters, or the like could reasonably be expected to further, either directly or indirectly, the commercial interest of the advertisers; The eligibility of the publishing organization to receive tax-deductible contributions; and The commercial or noncommercial methods used to solicit the advertisers. Ezform In this situation, the purchaser of a separate advertising space without a commercial message can nevertheless expect a commercial benefit from the goodwill derived from being identified in that manner as a patron of the organization. Ezform However, the purchaser of a listing cannot expect more than an inconsequential benefit. Ezform Therefore, the sale of separate spaces, but not the listings, is an unrelated trade or business. Ezform Publishing legal notices. Ezform A bar association publishes a legal journal containing opinions of the county court, articles of professional interest to lawyers, advertisements for products and services used by the legal profession, and legal notices. Ezform The legal notices are published to satisfy state laws requiring publication of notices in connection with legal proceedings, such as the administration of estates and actions to quiet title to real property. Ezform The state designated the bar association's journal as the place to publish the required notices. Ezform The publication of ordinary commercial advertising does not advance the exempt purposes of the association even when published in a periodical that contains material related to exempt purposes. Ezform Although the advertising is directed specifically to members of the legal profession, it is still commercial in nature and does not contribute importantly to the exempt purposes of the association. Ezform Therefore, the advertising income is unrelated trade or business income. Ezform On the other hand, the publication of legal notices is distinguishable from ordinary commercial advertising in that its purpose is to inform the general public of significant legal events rather than to stimulate demand for the products or services of an advertiser. Ezform This promotes the common interests of the legal profession and contributes importantly to the association's exempt purposes. Ezform Therefore, the publishing of legal notices does not constitute an unrelated trade or business. Ezform Museum greeting card sales. Ezform An art museum that exhibits modern art sells greeting cards that display printed reproductions of selected works from other art collections. Ezform Each card is imprinted with the name of the artist, the title or subject matter of the work, the date or period of its creation, if known, and the museum's name. Ezform The cards contain appropriate greetings and are personalized on request. Ezform The organization sells the cards in the shop it operates in the museum and sells them at quantity discounts to retail stores. Ezform It also sells them by mail order through a catalog that is advertised in magazines and other publications throughout the year. Ezform As a result, a large number of cards are sold at a significant profit. Ezform The museum is exempt as an educational organization on the basis of its ownership, maintenance, and exhibition for public viewing of works of art. Ezform The sale of greeting cards with printed reproductions of artworks contributes importantly to the achievement of the museum's exempt educational purposes by enhancing public awareness, interest, and appreciation of art. Ezform The cards may encourage more people to visit the museum itself to share in its educational programs. Ezform The fact that the cards are promoted and sold in a commercial manner at a profit and in competition with commercial greeting card publishers does not alter the fact that the activity is related to the museum's exempt purpose. Ezform Therefore, these sales activities are not an unrelated trade or business. Ezform Museum shop. Ezform An art museum maintained and operated for the exhibition of American folk art operates a shop in the museum that sells: Reproductions of works in the museum's own collection and reproductions of artistic works from the collections of other art museums (prints suitable for framing, postcards, greeting cards, and slides); Metal, wood, and ceramic copies of American folk art objects from its own collection and similar copies of art objects from other collections of artworks; Instructional literature and scientific books and souvenir items concerning the history and development of art and, in particular, of American folk art; and Scientific books and souvenir items of the city in which the museum is located. Ezform The shop also rents originals or reproductions of paintings contained in its collection. Ezform All of its reproductions are imprinted with the name of the artist, the title or subject matter of the work from which it is reproduced, and the museum's name. Ezform Each line of merchandise must be considered separately to determine if sales are related to the exempt purpose. Ezform The sale and rental of reproductions and copies of works from the museum's own collection and reproductions of artistic works not owned by the museum contribute importantly to the achievement of the museum's exempt educational purpose by making works of art familiar to a broader segment of the public, thereby enhancing the public's understanding and appreciation of art. Ezform The same is true for the sale of literature relating to art. Ezform Therefore, these sales activities are not an unrelated trade or business. Ezform On the other hand, the sale of scientific books and souvenir items of the city where the museum is located has no causal relationship to art or to artistic endeavor and, therefore, does not contribute importantly to the accomplishment of the museum's exempt educational purposes. Ezform The fact that selling some of these items could, under different circumstances, be held related to the exempt educational purpose of some other exempt educational organization does not change this conclusion. Ezform Additionally, the sale of these items does not lose its identity as a trade or business merely because the museum also sells articles which do contribute importantly to the accomplishment of its exempt function. Ezform Therefore, these sales are an unrelated trade or business. Ezform Business league's parking and bus services. Ezform A business league, whose purpose is to retain and stimulate trade in a downtown area that has inadequate parking facilities, operates a fringe parking lot and shuttle bus service. Ezform It also operates, as an insubstantial part of its activities, a park and shop plan. Ezform The fringe parking lot and shuttle bus service operate in a manner that does not favor any individual or group of downtown merchants. Ezform The merchants cannot offer free or discount parking or bus fares to their customers. Ezform The park and shop plan allows customers of particular merchants to park free at certain parking lots in the area. Ezform Merchants participating in this plan buy parking stamps, which they distribute to their customers to use to pay for parking. Ezform Operating the fringe parking lot and shuttle bus service provides easy and convenient access to the downtown area and, therefore, stimulates and improves business conditions in the downtown area generally. Ezform That activity contributes importantly to the organization's accomplishing its exempt purpose and is not an unrelated trade or business. Ezform The park and shop plan encourages customers to use a limited number of participating member merchants in order to obtain free parking. Ezform This provides a particular service to individual members of the organization and does not further its exempt purpose. Ezform Therefore, operating the park and shop plan is an unrelated trade or business. Ezform Youth residence. Ezform An exempt organization, whose purpose is to provide for the welfare of young people, rents rooms primarily to people under age 25. Ezform The residence units are operated on, and as a part of, the premises in which the organization carries on the social, recreational, and guidance programs for which it was recognized as exempt. Ezform The facilities are under the management and supervision of trained career professionals who provide residents with personal counseling, physical education programs, and group recreational activities. Ezform The rentals are not an unrelated trade or business because renting the rooms is substantially related to the organization's exempt purpose. Ezform Health club program. Ezform An exempt charitable organization's purpose is to provide for the welfare of young people. Ezform The organization conducts charitable activities and maintains facilities that will contribute to the physical, social, mental, and spiritual health of young people at minimum or no cost to them. Ezform Nominal annual dues are charged for membership in the organization and use of the facilities. Ezform In addition, the organization organized a health club program that its members could join for an annual fee in addition to the annual dues. Ezform The annual fee is comparable to fees charged by similar local commercial health clubs and is sufficiently high to restrict participation in the program to a limited number of members of the community. Ezform The health club program is in addition to the general physical fitness program of the organization. Ezform Operating this program does not contribute importantly to the organization's accomplishing its exempt purpose and, therefore, is an unrelated trade or business. Ezform Miniature golf course. Ezform An exempt youth welfare organization operates a miniature golf course that is open to the general public. Ezform The course, which is managed by salaried employees, is substantially similar to commercial courses. Ezform The admission fees charged are comparable to fees of commercial facilities and are designed to return a profit. Ezform The operation of the miniature golf course in a commercial manner does not contribute importantly to the accomplishment of the organization's exempt purpose and, therefore, is an unrelated trade or business. Ezform Sales of hearing aids. Ezform A tax-exempt hospital, whose primary activity is rehabilitation, sells hearing aids to patients. Ezform This activity is an essential part of the hospital's program to test and evaluate patients with hearing deficiencies and contributes importantly to its exempt purpose. Ezform It is not an unrelated trade or business. Ezform Nonpatient laboratory testing. Ezform Nonpatient laboratory testing performed by a tax-exempt teaching hospital on specimens needed for the conduct of its teaching activities is not an unrelated trade or business. Ezform However, laboratory testing performed by a tax-exempt non-teaching hospital on referred specimens from private office patients of staff physicians is an unrelated trade or business if these services are otherwise available in the community. Ezform Selling endorsements. Ezform An exempt scientific organization enjoys an excellent reputation in the field of biological research. Ezform It exploits this reputation regularly by selling endorsements of laboratory equipment to manufacturers. Ezform Endorsing laboratory equipment does not contribute importantly to the accomplishment of any purpose for which exemption is granted to the organization. Ezform Accordingly, the sale of endorsements is an unrelated trade or business. Ezform Sponsoring entertainment events. Ezform An exempt university has a regular faculty and a regularly enrolled student body. Ezform During the school year, the university sponsors the appearance of professional theater companies and symphony orchestras that present drama and musical performances for the students and faculty members. Ezform Members of the general public also are admitted. Ezform The university advertises these performances and supervises advance ticket sales at various places, including such university facilities as the cafeteria and the university bookstore. Ezform Although the presentation of the performances makes use of an intangible generated by the university's exempt educational functions—the presence of the student body and faculty—such drama and music events contribute importantly to the overall educational and cultural functions of the university. Ezform Therefore, the activity is not an unrelated trade or business. Ezform Excluded Trade or Business Activities The following activities are specifically excluded from the definition of unrelated trade or business. Ezform Volunteer workforce. Ezform Any trade or business in which substantially all the work is performed for the organization without compensation is not an unrelated trade or business. Ezform Example 1. Ezform A retail store operated by an exempt orphanage where unpaid volunteers perform substantially all the work in carrying on the business is not an unrelated trade or business. Ezform Example 2. Ezform A volunteer fire company conducts weekly public dances. Ezform Holding public dances and charging admission on a regular basis may, given the facts and circumstances of a particular case, be considered an unrelated trade or business. Ezform However, because the work at the dances is performed by unpaid volunteers, the activity is not an unrelated trade or business. Ezform Convenience of members. Ezform A trade or business conducted by a 501(c)(3) organization or by a governmental college or university primarily for the convenience of its members, students, patients, officers, or employees is not an unrelated trade or business. Ezform For example, a laundry operated by a college for the purpose of laundering dormitory linens and students' clothing is not an unrelated trade or business. Ezform Qualified sponsorship activities. Ezform Soliciting and receiving qualified sponsorship payments is not an unrelated trade or business, and the payments are not subject to unrelated business income tax. Ezform Qualified sponsorship payment. Ezform This is any payment made by a person engaged in a trade or business for which the person will receive no substantial benefit other than the use or acknowledgment of the business name, logo, or product lines in connection with the organization's activities. Ezform “Use or acknowledgment” does not include advertising the sponsor's products or services. Ezform The organization's activities include all its activities, whether or not related to its exempt purposes. Ezform For example, if, in return for receiving a sponsorship payment, an organization promises to use the sponsor's name or logo in acknowledging the sponsor's support for an educational or fundraising event, the payment is a qualified sponsorship payment and is not subject to the unrelated business income tax. Ezform Providing facilities, services, or other privileges (for example, complimentary tickets, pro-am playing spots in golf tournaments, or receptions for major donors) to a sponsor or the sponsor's designees in connection with a sponsorship payment does not affect whether the payment is a qualified sponsorship payment. Ezform Instead, providing these goods or services is treated as a separate transaction in determining whether the organization has unrelated business income from the event. Ezform Generally, if the services or facilities are not a substantial benefit or if providing them is a related business activity, the payments will not be subject to the unrelated business income tax. Ezform Similarly, the sponsor's receipt of a license to use an intangible asset (for example, a trademark, logo, or designation) of the organization is treated as separate from the qualified sponsorship transaction in determining whether the organization has unrelated business taxable income. Ezform If part of a payment would be a qualified sponsorship payment if paid separately, that part is treated as a separate payment. Ezform For example, if a sponsorship payment entitles the sponsor to both product advertising and the use or acknowledgment of the sponsor's name or logo by the organization, then the unrelated business income tax does not apply to the part of the payment that is more than the fair market value of the product advertising. Ezform Advertising. Ezform A payment is not a qualified sponsorship payment if, in return, the organization advertises the sponsor's products or services. Ezform For information on the treatment of payments for advertising, see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Ezform Advertising includes: Messages containing qualitative or comparative language, price information, or other indications of savings or value; Endorsements; and Inducements to purchase, sell, or use the products or services. Ezform The use of promotional logos or slogans that are an established part of the sponsor's identity is not, by itself, advertising. Ezform In addition, mere distribution or display of a sponsor's product by the organization to the public at a sponsored event, whether for free or for remuneration, is considered use or acknowledgment of the product rather than advertising. Ezform Exception for contingent payments. Ezform A payment is not a qualified sponsorship payment if its amount is contingent, by contract or otherwise, upon the level of attendance at one or more events, broadcast ratings, or other factors indicating the degree of public exposure to one or more events. Ezform However, the fact that a sponsorship payment is contingent upon an event actually taking place or being broadcast does not, by itself, affect whether a payment qualifies. Ezform Exception for periodicals. Ezform A payment is not a qualified sponsorship payment if it entitles the payer to the use or acknowledgment of the business name, logo, or product lines in the organization's periodical. Ezform For this purpose, a periodical is any regularly scheduled and printed material (for example, a monthly journal) published by or on behalf of the organization. Ezform It does not include material that is related to and primarily distributed in connection with a specific event conducted by the organization (for example, a program or brochure distributed at a sponsored event). Ezform The treatment of payments that entitle the payer to the depiction of the payer's name, logo, or products lines in an organization's periodical is determined under the rules that apply to advertising activities. Ezform See Sales of advertising space under Examples, earlier in this chapter. Ezform Also see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Ezform Exception for conventions and trade shows. Ezform A payment is not a qualified sponsorship payment if it is made in connection with any qualified convention or trade show activity. Ezform The exclusion of qualified convention or trade show activities from the definition of unrelated trade or business is explained later under Convention or trade show activity. Ezform Selling donated merchandise. Ezform A trade or business that consists of selling merchandise, substantially all of which the organization received as gifts or contributions, is not an unrelated trade or business. Ezform For example, a thrift shop operated by a tax-exempt organization that sells donated clothes and books to the general public, with the proceeds going to the exempt organization, is not an unrelated trade or business. Ezform Employee association sales. Ezform The sale of certain items by a local association of employees described in section 501(c)(4), organized before May 17, 1969, is not an unrelated trade or business if the items are sold for the convenience of the association's members at their usual place of employment. Ezform This exclusion applies only to the sale of work-related clothes and equipment and items normally sold through vending machines, food dispensing facilities, or by snack bars. Ezform Bingo games. Ezform Certain bingo games are not included in the term “unrelated trade or business. Ezform ” To qualify for this exclusion, the bingo game must meet the following requirements. Ezform It meets the legal definition of bingo. Ezform It is legal where it is played. Ezform It is played in a jurisdiction where bingo games are not regularly conducted by for-profit organizations. Ezform Legal definition. Ezform For a game to meet the legal definition of bingo, wagers must be placed, winners must be determined, and prizes or other property must be distributed in the presence of all persons placing wagers in that game. Ezform A wagering game that does not meet the legal definition of bingo does not qualify for the exclusion, regardless of its name. Ezform For example, “instant bingo,” in which a player buys a pre-packaged bingo card with pull-tabs that the player removes to determine if he or she is a winner, does not qualify. Ezform Legal where played. Ezform This exclusion applies only if bingo is legal under the laws of the jurisdiction where it is conducted. Ezform The fact that a jurisdiction's law that prohibits bingo is rarely enforced or is widely disregarded does not make the conduct of bingo legal for this purpose. Ezform No for-profit games where played. Ezform This exclusion applies only if for-profit organizations cannot regularly conduct bingo games in any part of the same jurisdiction. Ezform Jurisdiction is normally the entire state; however, in certain situations, local jurisdiction will control. Ezform Example. Ezform Tax-exempt organizations X and Y are organized under the laws of state N, which has a law that permits exempt organizations to conduct bingo games. Ezform In addition, for-profit organizations are permitted to conduct bingo games in city S, a resort community located in county R. Ezform Several for-profit organizations conduct nightly games. Ezform Y conducts weekly bingo games in city S, while X conducts weekly games in county R. Ezform Since state law confines the for-profit organizations to city S, local jurisdiction controls. Ezform Y's bingo games conducted in city S are an unrelated trade or business. Ezform However, X's bingo games conducted in county R outside of city S are not an unrelated trade or business. Ezform Gambling activities other than bingo. Ezform Any game of chance conducted by an exempt organization in North Dakota is not an unrelated trade or business if conducting the game does not violate any state or local law. Ezform Pole rentals. Ezform The term unrelated trade or business does not include qualified pole rentals by a mutual or cooperative telephone or electric company described in section 501(c)(12). Ezform A qualified pole rental is the rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that the company uses in providing telephone or electric services to its members, and According to the rental, to support one or more wires (in addition to the wires described in 1 ) for use in connection with the transmission by wire of electricity or of telephone or other communications. Ezform For this purpose, the term rental includes any sale of the right to use the pole (or other structure). Ezform Distribution of low cost articles. Ezform The term unrelated trade or business does not include activities relating to the distribution of low cost articles incidental to soliciting charitable contributions. Ezform This applies to organizations described in section 501 that are eligible to receive charitable contributions. Ezform A distribution is considered incidental to the solicitation of a charitable contribution if: The recipient did not request the distribution, The distribution is made without the express consent of the recipient, and The article is accompanied by a request for a charitable contribution to the organization and a statement that the recipient may keep the low cost article regardless of whether a contribution is made. Ezform An article is considered low cost if the cost of an item (or the aggregate costs if more than one item) distributed to a single recipient in a tax year is not more than $5, indexed annually for inflation. Ezform The maximum cost of a low cost article is $9. Ezform 70 for 2011. Ezform The cost of an article is the cost to the organization that distributes the item or on whose behalf it is distributed. Ezform Exchange or rental of member lists. Ezform The exchange or rental of member or donor lists between organizations described in section 501 that are eligible to receive charitable contributions is not included in the term unrelated trade or business. Ezform Hospital services. Ezform The providing of certain services at or below cost by an exempt hospital to other exempt hospitals that have facilities for 100 or fewer inpatients is not an unrelated trade or business. Ezform This exclusion applies only to services described in section 501(e)(1)(A). Ezform Public entertainment activity. Ezform An unrelated trade or business does not include a qualified public entertainment activity. Ezform A public entertainment activity is one traditionally conducted at a fair or exposition promoting agriculture and education, including any activity whose purpose is designed to attract the public to fairs or expositions or to promote the breeding of animals or the development of products or equipment. Ezform A qualified public entertainment activity is one conducted by a qualifying organization: In conjunction with an international, national, state, regional, or local fair or exposition; In accordance with state law that permits the activity to be operated or conducted solely by such an organization or by an agency, instrumentality, or political subdivision of the state; or In accordance with state law that permits an organization to be granted a license to conduct an activity for not more than 20 days on paying the state a lower percentage of the revenue from the activity than the state charges nonqualifying organizations that hold similar activities. Ezform For these purposes, a qualifying organization is an organization described in section 501(c)(3), 501(c)(4), or 501(c)(5) that regularly conducts an agricultural and educational fair or exposition as one of its substantial exempt purposes. Ezform Its conducting qualified public entertainment activities will not affect determination of its exempt status. Ezform Convention or trade show activity. Ezform An unrelated trade or business does not include qualified convention or trade show activities conducted at a convention, annual meeting, or trade show. Ezform A qualified convention or trade show activity is any activity of a kind traditionally conducted by a qualifying organization in conjunction with an international, national, state, regional, or local convention, annual meeting, or show if: One of the purposes of the organization in sponsoring the activity is promoting and stimulating interest in, and demand for, the products and services of that industry or educating the persons in attendance regarding new products and services or new rules and regulations affecting the industry; and The show is designed to achieve its purpose through the character of the exhibits and the extent of the industry products that are displayed. Ezform For these purposes, a qualifying organization is one described in section 501(c)(3), 501(c)(4), 501(c)(5), or 501(c)(6). Ezform The organization must regularly conduct, as one of its substantial exempt purposes, a qualified convention or trade show activity. Ezform The rental of display space to exhibitors (including exhibitors who are suppliers) at a qualified convention or trade show is not an unrelated trade or business even if the exhibitors who rent the space are permitted to sell or solicit orders. Ezform For this purpose, a supplier's exhibit is one in which the exhibitor displays goods or services that are supplied to, rather than by, members of the qualifying organization in the conduct of these members' own trades or businesses. Ezform Certain Internet activities conducted by a trade association described in section 501(c)(6) will be considered qualified convention and trade show activity if conducted on a special supplementary section of the association's website in conjunction with a trade show conducted by the association. Ezform The trade show itself must be a qualified convention and trade show activity. Ezform The supplementary section of the website must be ancillary to, and serve to augment and enhance, the trade show, as when it makes available the same information available at the trade show and is available only during a time period that coincides with the time period that the trade show is in operation. Ezform Conversely, Internet activities that are not conducted in conjunction with a qualified convention and trade show activity and that do not augment and enhance the trade show cannot themselves be qualified convention and trade show activity. Ezform Prev Up Next Home More Online Publications