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NACUBO, joined by seven other higher education associations, responded to the Internal Revenue Service’s request for comments in Notice 2018-67, which addressed the provision enacted as part of the Tax Cuts and Jobs Act (TCJA) requiring exempt organizations to separately calculate unrelated business taxable income (UBTI) for each unrelated activity conducted, rather than in the aggregate–the so-called “basketing requirement."

NACUBO’s letter included the following recommendations:

  • Use the first two digits of the North American Industry Classification System (NAICS) classification system as a safe-harbor basis for identifying separate trades or businesses, rather than the 6-digit codes proposed in the notice.
  • Clarify that deductions for certain expenses, such as charitable contributions, can be used to offset UBTI that is not separately computed, including the tax on qualified transportation fringe benefits.
  • Clarify that deductions for tax preparation fees can be used to offset any UBTI (separately computed or not).
  • Clarify that state income taxes not directly connected with carrying on a trade or business should be allowed to reduce UBTI from any source.
  • The investment activities of an institution should be defined to include all investments as a limited partner in a partnership, such that all such investments can be included in a single basket for reporting purposes. If the IRS rejects that recommendation, NACUBO recommends that the transition rule in the notice be extended to apply to any partnership notice, not only those acquired before the date of the notice.
  • For the reporting of UBTI from investments, the percentage threshold for a control test for ownership in of partnership should be greater than 50 percent, rather than the 20 percent proposed in the notice.
  • Institutions holding interests as limited partners should be rebuttably presumed not to have control or influence over the partnership.

The IRS is expected to publish additional guidance related to UBTI provisions of the TCJA sometime in 2019. NACUBO will continue to monitor the issue and will report on future developments.


Mary Bachinger

Director, Tax Policy


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