Tax on Unrelated Business Income of Exempt Organizations

• The maximum cost of a low-cost article, for organizations eligible to receive charitable contributions, was increased to $9.50 for 2009. See Distribution of low-cost articles on page 8.
• The annual limit on associate member dues received by an agricultural or horticultural organization not treated as gross income was increased to $145 for 2009. See Exception under Dues of Agricultural Organizations and Business Leagues on page 10.
• The 5-year carryback election for losses on total capital expenditures for electric transmission property and pollution control facilities has expired. An organization still may elect to treat any GO Zone public utility loss as a specified liability loss. Certain other losses attributable to GO Zone losses, including those from Kiowa County, Kansas and other Midwestern disaster areas, are eligible for special carryback treatment. See Net operating loss deduction on page 12.
• The temporary suspension of deduction limits for qualified cash contributions for relief efforts in Midwestern disaster areas and contributions of food inventory by qualified farmers and ranchers has expired.

An exempt organization is not taxed on its income from an activity substantially related to the charitable, educational, or other purpose that is the basis for the organization's exemption. Such income is exempt even if the activity is a trade or business.

However, if an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business.

This publication covers the rules for the tax on unrelated business income of exempt organizations. It explains:

1. Which organizations are subject to the tax (chapter 1),
2. What the requirements are for filing a tax return (chapter 2),
3. What an unrelated trade or business is (chapter 3), and
4. How to figure unrelated business taxable income (chapter 4).

All section references in this publication are to the Internal Revenue Code.

See chapter 5 for information about getting these publications and forms.