Non-Profit Organizations: Taxation
Dec 03, 2015
Every year tax-exempt, nonprofit organizations have to file a tax return. Why would they have to file if they are tax exempt? It is merely an informational tax return. This is a way for the IRS to connect with every organization to ensure they are operating appropriately, given the parameters set forth for these organizations. There are sets of circumstances which would lead a nonprofit to incur tax on income generated.
Unrelated business income (UBI) in excess of $1,000 triggers this tax. The IRS defines UBI as “unrelated business income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purposes that are the basis of the organization’s exemption.” In the event that a nonprofit has this type of income, an additional form beyond the regular Form 990 will need to be completed, a 990-T return. This return acts much like a for-profit entity’s tax return and income tax is assessed on the net profit. Also, a nonprofit organization can carry forward any back losses associated with UBI, similar to a for-profit entity. The rule of thumb here is to ensure your operations and business dealings are related to your charitable purpose, thus you will avoid the tax and additional filings associated.
Courtney Elgin, CPA