Organization's significant unrelated activity does not cause loss of tax-exempt status.IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. Letter Ruling (TAM) 9636001 explores the "commerciality doctrine" and whether an activity deemed "substantially unrelated" should cause an exempt organization to forfeit To lose to another person or to the state some privilege, right, or property due to the commission of an error, an offense, or a crime, a breach of contract, or a neglect of duty; to subject property to confiscation; or to become liable for the payment of a penalty, as the result of a its exempt status. TAM 9636001 deals with an educational institution that operates schools offering Christian training. As the schools grew, the need for school materials and textbooks arose. As a result, the organization began publishing textbooks and other materials for use in its schools. The organization's curriculum became so popular that it began offering curriculum assistance and teaching materials to other similar schools. The demand was so great that the organization set up a separate publishing division. Eventually, the revenue from this publishing division accounted for more than 50% of the organization's total gross receipts the total of the receipts, before they are diminished by any deduction, as for expenses; - distinguished from net profits. - Bouvier. See under Gross, a. os> See also: Gross Receipt . The publishing division customarily earned margins of up to 75% of its gross receipts. The division operated like a commercial publisher by: * Paying royalties to nonschool employees who wrote textbooks. * Marketing its textbooks throughout the world. * Producing textbooks at the rate of 15,000 every eight hours. * Running its presses 16 hours per day * Paying salespersons commissions based on volume sold. The Service concluded that this "commercial" activity made all publishing revenue subject to unrelated business income tax Unrelated Business Income Tax (UBIT) in the U.S. Internal Revenue Code is the tax on unrelated business income, which comes from an activity engaged in by a tax-exempt 26 USCA 501 organization that is not related to the tax-exempt purpose of that organization. (UBIT UBIT Unrelated Business Income Tax UBiT Universitetsbiblioteket I Trondheim (NTNU Library) ). However, the IRS did not propose revocation The recall of some power or authority that has been granted. Revocation by the act of a party is intentional and voluntary, such as when a person cancels a Power of Attorney that he has given or a will that he has written. of the organization's exempt status, because the organization continued to conduct substantial and significant exempt activities and none of the funds were used for noneducational purposes. The Service looks to the primary purpose of the organization's activities to help assess whether it should qualify for exempt status; in this case, the organization conducted its exempt program at a scope commensurate com·men·su·rate adj. 1. Of the same size, extent, or duration as another. 2. Corresponding in size or degree; proportionate: a salary commensurate with my performance. 3. with its financial resources. This holding again demonstrates that there is no quantitative UBIT amount that will cause revocation of an organization's exempt status. The critical consideration is the level of exempt functions conducted by the organization and its overall reason for existence. |
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