In general, nonprofits (excluding churches) which normally receive $25,000 or more in annual income must file 990s and Schedule A. There are other schedules which are required by some nonprofits; for example, 990-T is required for nonprofits which have "unrelated business income" during the year.
In addition, nonprofits that have expended $300,000 or more in federal funds must have an A-133 audit (see FAQ #19).
The Unrelated Business Income Tax (UBIT) was enacted to prevent unfair competition from nonprofit organizations using their tax free monies to expand their businesses. Briefly, unrelated business income results from an activity that is 1) a trade or business, 2) regularly carried on, and 3) is not substantially related to the organization's tax-exempt purpose. Certain activities such as work performed by volunteers, activities for the convenience of members, etc., are among the many activities specifically excluded from this broad definition.
An organization with unrelated business income is subject to tax based on corporate income tax rates. Generally, if an organization receives more than 5% of its total income from unrelated business income, it may endanger its tax-exempt status.
Return to the List of FAQs
|
  |
|
|
