IRS Advisory Committee Report Recommends Guidance and Changes in UBIT Reporting
June 13, 2014
A June 11 report issued by the IRS Advisory Committee on Tax Exempt and Government Entities (ACT), makes recommendations concerning unrelated business income tax (UBIT), issues including a redesigned Form 990-T.
The recommendations seek to address UBIT compliance issues cited in the IRS Final Report of the Colleges and Universities Compliance Project, which focused on the results of audits at 34 institutions that followed a 2008 IRS survey of 400 colleges and universities. The report recommends the following future guidance to be developed by the IRS:
- Regulations providing that profits from a substantial commercial activity will not preclude exemption under section 501(c)(3) as long as the organization's income and financial resources are used commensurate in scope with its charitable program
- Formal guidance to be issued to IRS field employees regarding the proper methods for allocating indirect costs when facilities and/or personnel are used to carry on exempt activities and to conduct unrelated trade or business
- A revenue ruling on UBIT issues, including provisions addressing: categories of activities that will be considered related and unrelated; preparatory time spent on activities; and scenarios of situations involving activities frequently reported on the college and university questionnaire (e.g., facility rentals and dual-use properties)
- A new, web-based Form 990-T, featuring activity-by-activity reporting by means of a checklist that would not be open to public disclosure. The proposed form would include links to IRS reference materials and activity-specific worksheets for filers with step-by-step processes for calculating revenues and expenses that flow through to a redesigned form.
The advisory committee's recommendations are submitted to the IRS for consideration and potential action. NACUBO is monitoring these issues and will report on any future proposed guidance or IRS actions.
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