Unrelated Business Income Tax (UBIT)


Under Section 512(a) of the Internal Revenue Code, nonprofits are subject to tax on gross income, minus directly connected expenses, for activities that constitute an “unrelated trade or business.” The Code offers a three-pronged test for determining whether a particular activity is an “unrelated trade or business.” The activity must be (1) a trade or business that is (2) regularly carried on, and (3) isn’t substantially related to the organization’s exempt purpose. There are many exceptions to what activities qualify as “unrelated trade or business,” including exceptions for volunteer services.

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