Unrelated Business Income Tax Returns, Tax Year 2001
by Margaret Riley
ax Year 2001 marked the third consecutive year for which filings of Form 990-T, Exempt Organization Business Income Tax Return, declined. Overall, 35,540 organizations reported $7.9 billion of gross “unrelated business income” (UBI) on Tax Year 2001 Forms 990-T filed during 2002 and 2003, which represented 8-percent fewer filers and 6-percent less in gross UBI, compared to Tax Year 2000. For each of Tax Years 1999 and 2000, the number of returns filed declined by 9 percent. However, gross UBI increased for both of those years, by 2 percent and 9 percent, respectively. Unrelated business income is subject to taxation under the Internal Revenue Code. It is the portion of an otherwise Federally tax-exempt organization’s total income that is produced from activities that are considered “not substantially related” to the stated mission for which the organization received the exemption. Unrelated business (positive) taxable income (UBTI) and the associated unrelated business income tax (UBIT) reported on Form 990-T dropped sharply for Tax Year 2001. UBTI of $792.0 million and UBIT of $226.0 million were a respective 45-percent and 44-percent lower than UBTI and UBIT amounts reported for 2000. The number of returns filed with UBTI dropped 21 percent between the 2 years. After adjusting UBIT with certain credits and other taxes, the resulting total tax reported on Form 990-T was $221.5 million, a 45-percent decrease between 2000 and 2001 [1]. Figure A contains these and other statistics for selected major financial data items reported on Forms 990-T for Tax Years 2000 and 2001. Total tax takes into account $226.0 million of unrelated business income tax, plus $0.5 million of alternative minimum tax, $1.4 million of “proxy tax” on certain nondeductible lobbying and political expenditures, and $0.02 million of “other” taxes, minus $6.4 million of tax credits [2, 3]. Tax credits included the foreign tax credit ($3.3 million), general business credit ($1.7 million), credit for prior-year minimum tax ($0.2 million), and “other” credits ($1.2 million).
Margaret Riley is a statistician with the Special Studies Special Projects Section. This article was prepared under the direction of Barry W. Johnson, Chief.
T
Figure A
Selected Items from Forms 990-T, Exempt Organization Business Income Tax Returns, Tax Years 2000-2001
[Money amounts are in thousands of dollars]
Percentage Item 2000 2001 change
(1) Number of returns, total..................... With gross unrelated business income of $10,000 or less¹............. With gross unrelated business income over $10,000 ¹................... With unrelated business taxable income.............................. Without unrelated business taxable income ²............................ 38,567 15,069 23,498 19,336 19,231
(2) 35,540 12,653 22,888 15,277 20,264 7,900,464 7,882,907 17,557 791,963 774,406 226,032 221,532
(3) -7.8 -16.0 -2.6 -21.0 5.4 -6.1 2.3 -97.5 -44.5 8.0 -44.3 -45.0
Gross unrelated business income..... 8,413,385 Total deductions ³................................ 7,703,052 Unrelated business taxable income (less deficit).......................... 710,333 Unrelated business taxable income.. 1,427,441 Deficit................................................ 717,109 Unrelated business income tax......... Total tax................................................ 405,826 402,904
¹ Organizations with gross unrelated business income (UBI) between $1,000 (the filing threshold) and $10,000 were not required to report itemized expenses and deductions, or to complete return schedules. Those with gross UBI over $10,000 were required to fill out a more detailed "complete" return. ² Includes returns with deficits and "breakeven" returns with equal amounts of gross unrelated business income and total deductions. ³ Excludes cost of sales and services, which was subtracted from gross receipts from sales and services in computing gross profit from sales and services (GPSS). GPSS is a component of gross unrelated business income (on which the filing requirement is based). Total cost of sales and services was $2.3 billion for both 2000 and 2001. NOTES: Detail may not add to totals because of rounding. See the Explanation of Selected Terms section of this article for definitions of gross unrelated business income, total deductions, unrelated business taxable income (less deficit), unrelated business income tax, and total tax.
Background
Definition of Unrelated Business Income Nonprofit organizations that are granted Federal tax exemption based on their mission-related purposes are allowed, within certain limits, to generate income from unrelated business activities; however, the income from these activities is subject to taxation. Unrelated business income is produced from an activity that is both conducted on a regular basis and not directly related to an organization’s tax-exempt mission. The fact that the income may be used for furthering an organization’s exempt purposes does
59
Unrelated Business Income Tax Returns, Tax Year 2001
not alter the definition [4]. Any profits from an organization’s unrelated business activities are taxed at regular corporate or trust income tax rates [5]. There are certain exclusions to this income taxation; some examples are engaging in business activities in which substantially all of the work is performed by volunteer labor; selling merchandise that the organization received as a gift or contribution; and operating certain games of chance, as specified in the Internal Revenue Code (IRC). Form 990-T Filing Requirements Organizations that are described in IRC sections 220(e), 401(a), 408(e), 408A, 501(c)(2)-(27), 529(a), and 530(a) must file a Form 990-T if they received $1,000 or more of gross income from business activities that were considered unrelated to the purposes for which they received tax-exempt status. (The various types of tax-exempt organizations subject to the unrelated business income tax provisions are described, by Code section, in the Appendix to this article.) IRC section 501(d) religious and apostolic organizations, farmers’ cooperatives, and section 4941(a)(1) “nonexempt charitable trusts” report taxes on forms other than Form 990-T. Most tax-exempt organizations are required to file an annual Form 990, Return of Organization Exempt From Income Tax, or Form 990-EZ, Short Form Return of Organization Exempt From Income Tax (used by organizations with annual gross receipts of less than $100,000 and total end-of-year assets of less than $250,000) [6]. The Form 990-T is required only for a tax year in which an organization has unrelated business income. While specific taxpayer information reported on an exempt organization’s Form 990/990-EZ “information return” can be disclosed to the public, specific taxpayer information reported on its Form 990-T “tax return” cannot. Under disclosure rules governing the release of taxpayer information, only aggregate totals from Form 990-T can be presented in this article. The Internal Revenue Service required organizations having accounting periods beginning in 2001 (and, therefore, ending between December 2001 and November 2002, for full-year return filers) to file a 2001 Form 990-T to report unrelated business income of $1,000 (the filing threshold) or more. The associated required due dates for filing Tax Year 2001
60
Forms 990-T generally spanned May 2002 to April 2003, but extensions of time to file beyond this period routinely were granted to many organizations. For all Internal Revenue Code (IRC) section 220(e), 401(a), 408(e), 408A, and 530(a) trusts, the required accounting period was Calendar Year 2001, and the filing date was April 15, 2002. Corresponding to the required filing dates, the Tax Year 2001 study sample was drawn from Forms 990-T processed by IRS throughout Calendar Years 2002 and 2003. (See the Data Sources and Limitations section of this article for detailed information on the study sample.) Because of the various accounting periods of the organizations filing a 2001 return, the financial activities covered in this article span the period January 2001 through November 2002, although 54 percent of Form 990-T filers had Calendar Year 2001 accounting periods. Any returns filed by organizations with gross unrelated business income (UBI) below the $1,000 filing requirement threshold were excluded from the statistics presented in this article. Some of these returns were filed inadvertently; others were filed for a specific reason, such as to claim a refund of tax withheld erroneously on interest or dividend payments (reported on Form 1099) because the payer did not realize that the payee was a tax-exempt organization. Organizations with gross UBI between $1,000 and $10,000 were required to report only totals for expenses and deductions (except for the “specific deduction” and “net operating loss deduction,” which all organizations reported separately). Organizations with gross UBI over $10,000 were required to report more detailed expense and deduction information. Statistical Tables At the end of this article, Tax Year 2001 statistics covering selected financial data (including gross UBI, total deductions, unrelated business taxable income (UBTI), and total income tax) are shown in Tables 15. Tables 6 and 7 provide data on detailed sources of UBI and deductions, respectively. Statistics shown in Table 1 are distributed by type of organization based on Internal Revenue Code sections. Tables 2, 4, 6, and 7 are distributed by size of gross UBI; Table 4 is also distributed by type of entity. Table 3 is distributed by size of UBTI, while Table 5 is distributed by unrelated business activity or industrial grouping.
60
Unrelated Business Income Tax Returns, Tax Year 2001
Declines in Form 990-T Filings
The diminishing number of returns filed for Tax Years 1999-2001 was driven primarily by small income-size organizations, those with gross UBI of $10,000 or less. Their Form 990-T filings dropped 20 percent for 1999, 15 percent for 2000, and 16 percent for 2001. The composition of the small-income size filers, according to type of organization described in the Internal Revenue Code, differs greatly from that of their larger income-size counterparts. Section 408(e) traditional Individual Retirement Accounts (IRA’s) historically have accounted for a large portion of filers having gross UBI of $10,000 or less. As shown in Figure B, they accounted for 52 percent of Forms 990-T filed by small-income size organizations for 1998. Their representation within this group dwindled each consecutive tax year, falling to 18 percent for 2001. Other types of organizations that predominated in the smaller income-size group were section 501(c)(3) nonprofit “charitable” organizations, 501(c)(6) business leagues, chambers of commerce, and real estate boards, and 501(c)(7)
Figure B
Form 990-T Filings of Organizations Tax-Exempt Under Selected Internal Revenue Code Sections, by Size of Gross Unrelated Business Income (UBI), Tax Years 1998-2001
Selected Internal Revenue Code section, by size of gross UBI (1) GROSS UBI OF $10,000 OR LESS Number of returns..................... 22,124 17,781 15,069 12,653 (2) (3) (4) 1998 1999 2000 2001
Percentage of returns filed 408(e)....................................... 501(c)(3)................................... 501(c)(6)................................... 501(c)(7)................................... Percentage total....................... GROSS UBI OVER $10,000 Number of returns..................... 24,084 24,369 23,498 22,888 51.8 11.6 9.8 14.7 87.9 43.7 16.4 11.6 14.9 86.6 32.4 19.4 15.4 18.4 85.6 17.6 24.1 16.4 24.3 82.4
Percentage of returns filed 408(e)....................................... 501(c)(3)................................... 501(c)(6)................................... 501(c)(7)................................... Percentage total....................... 4.9 34.6 16.9 14.9 71.3 3.8 35.7 16.8 16.4 72.7 2.7 36.5 16.0 17.2 72.4 1.2 41.8 15.2 17.2 75.4
NOTE: See the appendix to this article for a listing of the types of tax-exempt organizations, by the Internal Revenue Code section describing them.
recreational and social clubs [7]. As for larger income-size organizations, those having gross UBI over $10,000, the section 501(c)(3) charitable organizations consistently were the biggest group of filers, followed by the section 501(c)(6) and 501(c)(7) organizations. For 2001, the charities filed 42 percent of larger income-size returns (and 35 percent-36 percent of larger income-size returns for 1998-2000), and the section 501(c)(6) and 501(c)(7) filers accounted for 15 percent and 17 percent, respectively. Over the 1998-2001 period, the charitable organizations’ proportions of total return filings grew each year in both income-size classes. In contrast to their significant representation in the smaller incomesize group, the section 408(e) IRA’s accounted for 5 percent or less of all larger income-size Forms 990-T in any year over the 4-year period. While there may have been many factors affecting overall declines in the number of Form 990-T returns filed and amounts of taxable income reported over the Tax Year 2001 period, poor performance of U.S. equities markets played a large role in these declines for certain types of organizations. (As discussed in the Form 990-T Filing Requirements section, above, financial activities conducted by organizations filing Tax Year 2001 returns, in aggregate, spanned the period January 2001 through November 2002.) Throughout Calendar Years 2001 and 2002, the “Wilshire 5000 Composite Index” tracked numerous spikes of rising and falling index values, but, overall, equity market values declined substantially from the beginning of 2001 to the end of 2002 [8]. The types of Form 990-T filers most likely to be affected by market performance swings are organizations that pool securities and other assets in trusts operated on behalf of shareholders, or beneficiaries of employee benefit funds. A large part of this group is comprised of smaller income-size section 408(e) IRA trusts, which rely heavily on investments as an income source. It appears that the annual number of Forms 990-T filed by IRA trusts is closely tied with annual financial market fluctuations. (All trust filers have calendar-year accounting periods; so, their IRS tax year corresponds to annual market indexes.) Their filings rise and fall in tandem with the performances of their investments. Growing investment losses sustained from the end of 1999 through 2001 may be the principal reason why they filed fewer returns for each successive year, as the filing thresh-
61
Unrelated Business Income Tax Returns, Tax Year 2001
old for Form 990-T is based on gross unrelated business income of $1,000 or more.
Selected Financial Data Distributions
Selected distributions of the Tax Year 2001 Form 990-T data show that decreases in major financial data items were widely dispersed. Figures C, D, and F contain Form 990-T data distributed by type of entity and size of gross UBI; type of organization, classified by Internal Revenue Code (IRC); and type of unrelated business activity or industrial grouping. Each of these figures compares Tax Years 2000 and 2001 amounts of gross unrelated business income, total deductions, and unrelated business taxable income. Type of Entity and Size of Gross Unrelated Business Income (UBI) The cross section of organizations in Figure C is distributed by type of entity, either tax-exempt corporation or tax-exempt trust, and size of gross UBI. The unrelated business taxable income of both corporate and trust filers of Form 990-T fell substantially from 2000 to 2001. In addition, across all income-
size classes, the trusts had far higher rates of decline in gross UBI than the corporate entities for 2001. Characteristically, the tax-exempt corporate entities account for disproportionately large shares of returns filed, gross UBI, and total deductions reported on Form 990-T, but more modest shares of UBTI. For the 5 years preceding Tax Year 2001, incorporated tax-exempt organizations’ gross UBI was between 66 percent and 74 percent of the total reported by all organizations, and their UBTI ranged between 40 percent to 51 percent of aggregate total taxable income. Tax-exempt trusts accounted for the remaining 49 percent to 60 percent of aggregate UBTI during those years. For 2001, the tax-exempt corporations accounted for nearly three-fifths of UBTI. The tax-exempt trusts’ shares of aggregate gross UBI and aggregate UBTI for 2001 were only 9 percent and 41 percent, respectively. Overall, the trust entities filed 48-percent fewer Forms 990-T for 2001, compared to a slight increase in returns filed by corporate entities. Corporations reporting gross UBI of $10,000 or less filed nearly 7-percent more Form 990-T returns for 2001, com-
62
Figure C
Selected Form 990-T Financial Data Items, by Type of Entity and Size of Gross Unrelated Business Income (UBI), Tax Years 2000-2001
[Money amounts are in thousands of dollars]
Type of entity and size of gross unrelated business income (UBI)
Number of returns Per2000 (1) 2001 (2) 35,540 31,697 10,102 13,861 5,653 993 1,088 3,843 2,551 798 318 61 116 centage change (3) -7.8 1.4 6.6 -0.9 0.6 -5.5 -1.9 -47.5 -54.4 -31.2 -2.2 -33.0 -23.7
Gross unrelated business income (UBI) Per2000 (4) 2001 (5) centage change (6) -6.1 -0.2 1.8 -7.7 -0.6 -5.3 1.5 -41.6 -65.1 -31.4 -11.4 -31.7 -44.5 2000 (7)
Total deductions Per2001 (8) centage change (9) 2.3 3.9 -3.4 -0.7 1.0 -1.2 6.2 -20.8 4.1 -52.4 15.5 14.9 -24.9
Unrelated business taxable income (UBTI) ¹ Per2000 (10) 1,427,441 714,035 11,643 92,987 126,603 69,786 413,017 713,407 7,973 18,757 39,923 38,980 607,773 2001 (11) 791,963 469,167 11,446 73,003 104,492 53,360 226,866 322,796 1,877 11,659 31,179 17,756 260,325 centage change (12) -44.5 -34.3 -1.7 -21.5 -17.5 -23.5 -45.1 -54.8 -76.5 -37.8 -21.9 -54.4 -57.2
All entities................................ Tax-exempt corporations........ $1,000 under $10,001²............ $10,001 under $100,000²........ $100,000 under $500,000....... $500,000 under $1,000,000.... $1,000,000 or more................. Tax-exempt trusts.................... $1,000 under $10,001²............ $10,001 under $100,000²........ $100,000 under $500,000....... $500,000 under $1,000,000.... $1,000,000 or more.................
1
38,567 31,245 9,474 13,992 5,619 1,051 1,109 7,322 5,594 1,160 325 91 152
8,413,385 7,900,464 7,219,027 7,202,952 44,324 45,108 546,655 504,316 1,235,499 1,228,568 735,159 695,916 4,657,391 4,729,044 1,194,357 16,467 36,697 76,152 64,289 1,000,752 697,512 5,745 25,176 67,436 43,923 555,232
7,703,052 7,882,907 7,203,007 7,486,872 50,874 49,129 542,103 538,075 1,287,214 1,299,717 730,279 721,172 4,592,536 4,878,779 500,045 9,226 29,743 38,918 25,738 396,420 396,035 9,602 14,150 44,960 29,563 297,759
Unrelated business taxable income (UBTI) is tabulated from returns where the result of gross unrelated business income (UBI) minus total deductions is positive. Returns with deficits and "breakeven" returns with equal amounts of gross UBI and total deductions are excluded. The gross unrelated business income (UBI) brackets of "$1,000 under $10,001" and "$10,001 under $100,000" reflect the different filing requirements for organizations with gross UBI of $10,000 or less (not required to report itemized expenses and deductions, or to complete return schedules) and all other Form 990-T filers (required to file a more detailed "complete" return). Organizations with gross UBI below $1,000 were not required to file Form 990-T. NOTE: Detail may not add to totals because of rounding.
2
62
Unrelated Business Income Tax Returns, Tax Year 2001
Figure D
Selected Form 990-T Financial Data Items, by Selected Internal Revenue Code Sections, Tax Years 2000-2001
[Money amounts are in thousands of dollars] Selected Internal Revenue Code section 2000 (1) All sections............... 401(a)....................... 408(e)....................... 501(c)(2).................. 501(c)(3).................. 501(c)(4).................. 501(c)(5).................. 501(c)(6).................. 501(c)(7).................. 501(c)(8).................. 501(c)(9).................. All other sections......
1
Number of returns Per2001 (2) 35,540 300 2,499 250 12,618 1,487 2,213 5,569 6,997 583 672 2,352 centage change (3) -7.8 -47.0 -54.7 2.0 9.8 0.5 -10.9 -8.5 2.5 -13.5 10.0 -8.9
Gross unrelated business income (UBI) Per2000 (4) 8,413,385 176,647 44,905 83,538 4,780,148 331,351 239,430 901,135 561,235 104,702 941,207 249,087 2001 (5) 7,900,464 92,887 13,599 105,164 4,811,839 419,441 235,027 859,635 504,800 109,454 497,213 251,405 centage change (6) -6.1 -47.4 -69.7 25.9 0.7 26.6 -1.8 -4.6 -10.1 4.5 -47.2 0.9 2000 (7)
Total deductions Per2001 (8) 7,882,907 43,393 3,879 95,881 5,080,304 430,220 233,862 860,503 474,924 111,948 285,679 262,314 centage change (9) 2.3 -32.4 -74.8 14.7 5.2 25.6 -0.2 -2.5 -3.7 8.2 -30.4 7.1
Unrelated business taxable income (UBTI) 2000 (10) 1,427,441 114,242 30,066 10,135 469,089 12,394 24,150 80,787 106,452 6,957 547,915 25,254 2001 (11) 791,963 58,500 9,814 24,016 292,308 12,098 21,892 62,112 72,491 4,688 212,618 21,426
1
Percentage change (12) -44.5 -48.8 -67.4 137.0 -37.7 -2.4 -9.3 -23.1 -31.9 -32.6 -61.2 -15.2
38,567 566 5,516 245 11,497 1,480 2,484 6,086 6,825 674 611 2,583
7,703,052 64,174 15,381 83,594 4,828,648 342,431 234,413 882,345 493,097 103,490 410,645 244,834
Unrelated business taxable income (UBTI) is tabulated from returns where the result of gross unrelated business income (UBI) minus total deductions is positive. Returns with deficits and "breakeven" returns with equal amounts of gross UBI and total deductions are excluded. NOTE: Detail may not add to totals because of rounding. See the appendix to this article for a listing of the types of tax-exempt organizations, by the Internal Revenue Code section describing them.
pared to a 54-percent decline in return filings by trusts in the same income bracket. Also, corporations in this income bracket had the smallest percentage decrease in taxable income, only 2 percent. Type of Organization, Classified by Internal Revenue Code Section Tax-exempt organizations classified by the IRC section describing them are shown in Figure D. Section 408(e) traditional Individual Retirement Accounts experienced the largest percentage decrease in the number of returns filed for 2001, followed by section 401(a) pension, profit-sharing, and stock-bonus plans. These tax-exempt trusts also had large percentage declines in gross UBI, total deductions, and UBTI, although their shares of the aggregate total of each of these financial items are comparatively small. Voluntary employees’ beneficiary associations (VEBA’s), described under section 501(c)(9), also had sizable percentage decreases in these three items for 2001. Most VEBA’s are formed as trusts, and, like the section 401(a) and 408(e) trusts, a large portion of their unrelated business incomes come from investments. Section 501(c)(7) recreational and social clubs were also somewhat affected by poor equity
market performance during their Tax Year 2001 accounting periods. Investment income (less loss) made up 20 percent of their gross UBI for 2000, and then declined to 15 percent of their gross UBI for 2001. Between the 2 years, the amount of income (less loss) from their investments dropped 33 percent. Any income received by section 408(e) and section 401(a) organizations from investments that were “debt-financed” (i.e., purchased with funds obtained from loans) is subject to taxation and must be reported on Form 990-T. All investment income of section 501(c)(9) VEBA’s (and also section 501(c)(7) organizations) is taxed under the UBIT provisions, without regard to whether or not it was debt-financed. For 2001, virtually all of IRA trusts’ gross UBI consisted of capital gain net income, combined partnership and S corporation income (less loss), and “other” unrelated debt-financed income. For the pension, profit-sharing, and stock bonus plans, these three Form 990-T income components accounted for 77 percent of gross UBI. Seventy-seven percent of VEBA’s gross UBI was attributable to investment income (less loss). The section 501(c)(2) holding companies and 501(c)(4) “social service” organizations experienced the largest percentage increases in gross UBI and
63
Unrelated Business Income Tax Returns, Tax Year 2001
64
64
total deductions among the organizations shown in Figure D, but the number of returns they filed for 2001 was about the same as the number filed for 2000. The section 501(c)(2) title holding companies were the only group of organizations that realized a percentage increase in taxable income between 2000 and 2001. Section 501(c)(3) nonprofit charitable organizations, which generally command more public interest than any other type of organization granted exemption from Federal income tax by the IRS, filed nearly 10-percent more returns for 2001. While their aggregate gross UBI was virtually unchanged, they reported total deductions that were, overall, 5-percent larger than those reported for 2000. For the 4,408 charitable organizations collectively reporting $292.3 million of total taxable UBI for 2001, aggregate UBTI dropped 38 percent from the amount reported for 2000. These charities reported 65 percent less in capital gain net income and 43 percent less in income (less loss) from partnerships and S corporations from 2000 to 2001. However, these two sources of income, combined, accounted for only 4 percent of charities’ total gross UBI reported for 2001. The group of charitable organizations with gross UBI above $10,000 (the income size requiring the reporting of detailed deductions on Form 990-T) accounted for nearly all of the total deductions claimed by section 501(c)(3) filers altogether, and their percentage changes in deductions and gross UBI mirrored those of the entire population of charitable organizations shown in Figure D. Section 501(c)(3) organizations with gross UBI above $10,000 are featured in Figure E, which shows selected itemized deductions reported for Tax Years 2000 and 2001. Reviewed individually, some aggregate itemized deductions increased, and others decreased over amounts reported for 2000. For instance, salaries and wages, the second largest itemized deduction reported by charitable organizations for 2001, rose 14 percent, while advertising costs, the third largest, fell 8 percent. The catch-all “other deductions” item, which contains all amounts that were not included on more specifically defined lines on Form 990-T, was larger than any other itemized deduction amount reported by charities with gross UBI above $10,000, accounting for 45 percent of the total. Organizations are required to attach a schedule detailing items included in other deductions, but some organizations provide only a
Figure E
Itemized Deductions of Internal Revenue Code Section 501(c)(3) Nonprofit Charitable Organizations With Gross Unrelated Business Income Over $10,000, Tax Years 2000-2001
[Money amounts are in thousands of dollars] PerDeduction item 2000 (1) Number of returns............................... 8,577 Total deductions.................................. 4,808,738 Allocable to rental income................... 108,275 Allocable to unrelated debt-financed income............................................... 286,323 432,771 Direct advertising costs....................... 925,250 Salaries and wages............................. 122,277 Depreciation........................................ Contributions to employee 139,353 benefit programs................................ Net operating loss deduction........................................... 124,909 156,455 Excess exempt expenses ¹.................. Other deductions................................. 2,113,896 Deductions not shown......................... 399,229
1
2001 (2) 9,570 5,064,297 115,351 303,607 397,697 1,054,662 134,362 152,640 100,213 146,035 2,266,076 393,654
centage change (3) 11.6 5.3 6.5 6.0 -8.1 14.0 9.9 9.5 -19.8 -6.7 7.2 -1.4
See the Explanation of Selected Terms section of this article for a definition of Excess Exempt Expenses. NOTE: Detail may not add to totals because of rounding.
lump-sum amount, often described as “operating expenses.” In these cases, the other deductions amount likely includes items that should have been reported on one of the more specifically defined Form 990-T deduction lines. Primary Unrelated Business Activity or Industrial Grouping Figure F presents Form 990-T data for selected primary unrelated business activities or industrial groupings, based on self-reported activity codes from the North Atlantic Industrial Classification System (NAICS) [9]. Organizations involved primarily in health care and controlled-organization activities, along with those conducting unrelated insurance and advertising activities, had fairly large percentage increases in gross UBI for 2001. The number of returns filed by organizations that reported advertising services as their primary unrelated business activity increased by 25 percent between 2000 and 2001, but the other three primary activities mentioned above experienced declines in the number of returns on which they were reported. Even though the aggregate gross UBI of organizations engaged in insurance and advertising activities increased, their aggregate
Unrelated Business Income Tax Returns, Tax Year 2001
Figure F
Selected Form 990-T Financial Data Items, by Selected Primary Unrelated Business Activities or Industrial Groupings, Tax Years 2000-2001
[Money amounts are in thousands of dollars] Selected primary unrelated business activity or industrial grouping 2000 (1) All activities and groupings.......... 38,567 Finance, total................................... 10,576 Investment activities of Code section 501(c)(7), (9), and (17) 2, 3 3,783 organizations ............................... Unrelated debt-financed activities, other than rental of 3 real estate ................................... 1,255 Passive income activities with 3 controlled organizations .............. 419 4 Funds and trusts ........................... 4,100 Other finance................................. 1,019 Insurance......................................... 1,583 Real estate and rental and leasing........................................... 5,283 Professional, scientific, and technical services, total.................. 6,812 Advertising services....................... 5,563 Health care....................................... 902 Arts, entertainment, and recreation....................................... 4,379 Accommodation and food services.......................................... 2,818 All other activities and groupings....................................... 6,214
1
Number of returns Per2001 (2) 35,540 7,438 centage change (3) -7.8 -29.7
Gross unrelated business income (UBI) Per2000 (4) 2001 (5) centage change (6) -6.1 -37.7 (7) 2000
Total deductions Per2001 (8) centage change (9) 2.3 -17.0
Unrelated business taxable income (UBTI) 2000 (10) 1,427,441 919,238 2001 (11) 791,963 401,627
1
Percentage change (12) -44.5 -56.3
8,413,385 7,900,464 1,760,222 1,096,504
7,703,052 7,882,907 888,982 737,592
3,656
-3.4
1,118,865
638,263
-43.0
542,962
401,753
-26.0
596,826
241,432
-59.5
744 308 1,793 937 1,279 5,986 8,026 6,958 822 3,918 2,897 5,174
-40.7 -26.5 -56.3 -8.0 -19.2 13.3 17.8 25.1 -8.9 -10.5 2.8 -16.7
241,918 180,755 116,821 101,863 457,922 827,943
88,662 216,467 46,267 106,845 524,008 838,648
-63.4 19.8 -60.4 4.9 14.4 1.3 8.1 19.9 21.9 -4.0 -0.2 -14.4
98,781 150,665 43,320 53,255 457,397 806,280
65,207 173,549 23,021 74,062 523,881 843,248
-34.0 15.2 -46.9 39.1 14.5 4.6 13.3 26.9 19.7 -1.8 11.3 -13.6
150,358 42,114 74,877 55,064 30,916 114,595 112,592 88,971 37,479 37,886 23,334 151,401
36,237 60,048 25,456 38,454 19,762 95,766 71,199 54,354 42,761 24,904 18,453 117,491
-75.9 42.6 -66.0 -30.2 -36.1 -16.4 -36.8 -38.9 14.1 -34.3 -20.9 -22.4
1,603,908 1,734,111 1,099,128 1,318,387 958,038 1,167,568 609,856 526,734 585,665 525,752
1,592,894 1,805,501 1,067,954 1,355,721 1,045,450 1,251,625 635,198 526,734 623,605 586,223
1,668,762 1,428,208
1,750,117 1,511,232
Unrelated business taxable income (UBTI) is tabulated from returns where the result of gross unrelated business income (UBI) minus total deductions is positive. Returns with deficits and "breakeven" returns with equal amounts of gross UBI and total deductions are excluded. Section 501(c)(7) organizations are social and recreational clubs; section 501(c)(9) organizations are voluntary employees' beneficiary associations; and section 501(c)(17) organizations are supplemental unemployment benefit trusts. See the Explanation of Selected Terms section of this article for definitions of Investment Income (Less Loss), Unrelated Debt-Financed Income, and Income from Controlled Organizations.
4 The Funds and trusts grouping is comprised of legal entities (funds, plans, accounts, trusts, programs) organized to pool securities or other assets on behalf of shareholders or beneficiaries of employee benefit or other trust funds. For Form 990-T filers, an overwhelming majority of organizations included in this grouping were section 408(e) traditional Individual Retirement Accounts (IRA's). NOTE: Detail may not add to totals because of rounding. 3 2
taxable income fell by a respective 36 percent and 39 percent. Once again, large declines in UBTI from 2000 to 2001 are prevalent in Figure F for most of the primary unrelated business activities or industrial groupings shown. Healthcare activities and the special Form 990-T category of passive income activities with controlled organizations are the only two types of primary activities included in Figure F to show increases in UBTI. Notable is the fact that the unrelated business income tax rules for investment income from debt-financed property owned directly by an exempt organization did not apply to debt-
financed investment income received indirectly, as a “pass-through,” by an exempt organization from a controlled organization (a subsidiary). Therefore, the total amount of income (generally, annuities, interest, rents, and royalties) from controlled organizations that was reported on Form 990-T did not include any debt-financed investment income received as a passthrough. Accordingly, any losses connected with debt-financed investments of controlled organizations were not taken into account in figuring UBTI on the controlling exempt organization’s Form 990-T. (For additional information on controlled organizations, see the definition of Income from Controlled Organiza-
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Unrelated Business Income Tax Returns, Tax Year 2001
66
66
tions in the Explanation of Selected Terms section of this article.) Form 990-T filings, gross UBI, total deductions, and UBTI fell at the highest rates for certain organizations within the finance sector. Tax-exempt entities reporting unrelated debt-financed activities as their primary source of gross UBI and organizations engaged in financial activities within the funds and trusts grouping stand out, with respective decreases in taxable income of 76 percent and 66 percent. Again, these types of organizations, which rely heavily on passive income from investments, are highly susceptible to downturns in equities markets, adversely affecting their financial activities during the Tax Year 2001 period. In contrast to the declines in UBI and UBTI shown in Figure F for the unrelated debt-financed activities classification, the growth in UBI and UBTI for the passive income activities with controlled organizations classification can be largely attributed to the absence of losses from debt-financed investments. As noted, any investment income and losses associated with debt-financed property owned by a controlled organization are not reported by a controlling exempt organization on its Form 990-T. It is often assumed that aggregate total gross UBI amounts reported on Form 990-T (and published by the IRS each year) are generated from direct involvement in commercial activities that are competitive with similar activities conducted by for-profit organizations, but this is not true for the entire population of organizations reporting UBI. Historically, especially when equities markets have performed well, large proportions of unrelated business taxable income and tax were attributable to trust entities that engaged in noncompetitive investment activities. As noted in the discussion of Figure D, passive income from investments comprises most of the gross UBI of IRA trusts; pension, profit-sharing, and stock-bonus plans; and voluntary employees’ beneficiary associations (VEBA’s). For the majority of corporate tax-exempt entities, (debt-financed) investment activities are secondary to other types of activities that generate UBI, and these entities are more likely to be involved in activities that are deemed competitive with those conducted by for-profit organizations. The section 501(c)(3) charities, 98 percent of which were corporate entities for 2001, are a good example of this. In terms of the highest frequencies
of a specific NAICS primary activity code being reported by the charities, the top three activities for 2001 were “medical and diagnostic laboratories,” “advertising and related services,” and “lessors of residential buildings and dwellings.” Their top three primary NAICS activities, ranked by the largest amounts of gross UBI generated, were “medical and diagnostic laboratories,” “advertising and related services,” and “pharmacies and drug stores.”
Summary
Overall, 35,540 organizations reported $7.9 billion of gross “unrelated business income” (UBI) on their 2001 Forms 990-T, Exempt Organization Business Income Tax Returns, which represented 8-percent fewer filers and 6-percent less in gross UBI, compared to Tax Year 2000. This was the third consecutive tax year for which filings of Form 990-T declined. Unrelated business (positive) taxable income (UBTI) and the associated unrelated business income tax (UBIT) reported on Form 990-T dropped sharply for Tax Year 2001. The $792.0 million of UBTI and the $226.0 million of UBIT represented declines of 45 percent and 44 percent, respectively, over amounts reported for 2000. Figures C, D, and F in this article contain Form 990-T data for Tax Years 2000 and 2001, distributed, respectively, by type of tax-exempt entity (corporation or trust) and size of gross UBI; type of organization (classified by Internal Revenue Code section); and type of unrelated business activity or industrial grouping. Decreases in Forms 990-T filed, and in major financial data items reported, for 2001 were widely dispersed among each of these distributions, although certain types of organizations experienced much larger declines than others. Tax-exempt entities organized as trusts filed 48-percent fewer Forms 990-T and reported sizable decreases in gross UBI and UBTI. Trust entities in the smallest income bracket, those with $1,000 (the filing threshold) to $10,000 of gross UBI, filed 54-percent fewer returns for 2001, and their gross UBI and UBTI amounts were a respective 65-percent and 77-percent lower than comparable amounts reported for the previous year. Section 408(e) traditional Individual Retirement Account (IRA) trusts filed 55-percent fewer returns for 2001, and they reported decreases of 70 percent in gross UBI and 67 percent in unrelated business taxable income (UBTI). Similarly, the number of
Unrelated Business Income Tax Returns, Tax Year 2001
returns filed by section 401(a) pension, profit-sharing, and stock-bonus plans dropped 47 percent, and their total gross UBI and UBTI dropped a respective 47 percent and 49 percent. Section 501(c)(3) nonprofit charitable organizations filed nearly 10-percent more Forms 990-T for 2001. Their gross UBI grew by less than 1 percent, and their total deductions increased by slightly more than 5 percent. Thirty-eight percent of the charitable organizations had unrelated business income that was taxable, and the amount of taxable income was 38 percent less than total UBTI reported for 2000. Form 990-T filings, gross UBI, total deductions, and UBTI fell at the highest rates for certain organizations engaging primarily in unrelated business activities within the finance sector. Tax-exempt organizations reporting unrelated debt-financed activities as their primary source of gross UBI, and those organizations engaged in financial activities within the “funds and trusts” grouping stand out, with respective decreases in taxable income of 76 percent and 66 percent. These types of organizations, which rely heavily on passive income from investments, were more likely to be adversely affected by poor equity market performance during Tax Year 2001.
Data Sources and Limitations
The Tax Year 2001 Form 990-T study incorporated a two-stage sample design consisting of a stratified random sample and a special “integrated” sample. The integrated sample was designed to gather information on “related” (tax-exempt) and “unrelated” (taxable) income and expenses for section 501(c)(3) organizations that filed both Form 990, Return of Organization Exempt from Income Tax (or Form 990-EZ, the short-form version of this information return), and Form 990-T. This integrated sampling program ensured that the Statistics of Income sample of Forms 990-T included any unrelated business income tax returns (with gross UBI of $1,000 or more) filed by organizations whose Form 990 or Form 990-EZ information returns were selected for the separate sample of section 501(c)(3) nonprofit charitable organizations. Organizations exempt under other Code sections were not subjected to the integrated sampling program. The Form 990-T returns were initially divided into strata, based on gross UBI, and selected using Bernouli sampling. Section 501(c)(3) returns not
selected randomly were then matched to returns UBI, total deductions, in the Forms 990/990-EZ and UBTI fell at the sample. These matched returns, along with any highest rates for certain randomly selected Forms organizations engaging 990-T that also had counterparts in the primarily in unrelated Forms 990/990-EZ business activities sample, formed the within the finance sector. “integrated” IRC section 501(c)(3) portion of the Form 990-T sample [10]. As shown in Figure G, the designed sampling rates ranged from a minimum of 2 percent (Form 990-T gross UBI less than $20,000, with either no Form 990/990-EZ match or a match to a Code section 501(c)(3) Form 990/990-EZ with total assets under $1,000,000) to a maximum of 100 percent (either Form 990-T gross UBI of $300,000 or more, or Form 990-T with any amount of gross UBI and a match to a section 501(c)(3) Form 990 with total assets of $30,000,000 or more). Other Forms 990-T were selected at rates ranging from 4 percent to 30 percent. In addition to designed sample rates, Figure G contains population counts, sample counts, and achieved sample rates, by size of gross unrelated business income reported on Form 990-T and size of total assets reported on Form 990 or Form 990-EZ. The population from which the 2001 Form 990-T sample was drawn consisted of Form 990-T records posted to the IRS Business Master File system during 2002 and 2003. Returns filed after Calendar Year 2003 were not included in the sample, unless a return was considered a large income-size case (over $300,000 or more of gross UBI). The returns in the sample were stratified based on the size of gross unrelated business income (UBI). A sample of 6,846 returns was selected from a population of 35,672. After excluding returns that were selected for the sample but later rejected, the resulting sample size was 6,808 returns, and the estimated population size was 35,540. Rejected returns included those that had gross UBI below the $1,000 filing threshold; were filed only to claim a refund or report the “proxy tax”; were filed for a part-year accounting period for 2001, and a full-year return was also filed for that year; or were filed for a part-year accounting period that began in a year other than 2001. For example, a final Form 990-T filings, gross
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Unrelated Business Income Tax Returns, Tax Year 2001
Figure G
Population and Sample Counts, and Designed and Achieved Sample Rates, by Sample Group, Tax Year 2001
Sample group number Size of gross unrelated business income (UBI) on Form 990-T 1 and size of total assets on matching IRC section 501(c)(3) Form 990 or Form 990-EZ Population counts (1) 1 Gross UBI $1,000 under $20,000 and total assets under $1,000,000, or Gross UBI $1,000 under $20,000 and no matching Form 990 or Form 990-EZ....................... Gross UBI $1,000 under $20,000 and total assets $1,000,000 under $2,500,000, or Gross UBI $20,000 under $60,000 and total assets under $2,500,000, or Gross UBI $20,000 under $60,000 and no matching Form 990 or Form 990-EZ..................... Gross UBI $1,000 under $60,000 and total assets $2,500,000 under $10,000,000, or Gross UBI $60,000 under $150,000 and total assets under $10,000,000, or Gross UBI $60,000 under $150,000 and no matching Form 990 or Form 990-EZ................... Gross UBI $1,000 under $150,000 and total assets $10,000,000 under $30,000,000, or Gross UBI $150,000 under $300,000 and total assets under $30,000,000, or Gross UBI $150,000 under $300,000 and no matching Form 990 or Form 990-EZ................. Gross UBI $300,000 or more, or total assets $30,000,000 or more......................................... All sample groups ²................................................................................................................ Sample counts (2) Designed Achieved sample sample rate rate Percentages (3) (4)
15,496
313
2.00
2.02
2
7,070
309
4.00
4.37
3
5,464
545
10.00
9.97
4
2,918 4,724 35,672
955 4,724 6,846
30.00 100.00 N/A
32.73 100.00 N/A
5
68
N/A - Not applicable. The Form 990-T sample included returns that were initially selected based on independent Form 990-T sampling criteria, and additional returns that were not initially selected but were subsequently matched to returns in the Forms 990 and 990-EZ sample of IRC section 501(c)(3) filers. Form 990-EZ may be completed by smaller organizations, those with gross receipts of less than $100,000 and end-of-year assets of less than $250,000. 2 After excluding returns that were originally selected for the sample but later rejected, the sample size was 6,808, and the estimated population size was 35,540.
1
68
return filed for the short period of January 2002-June 2002 may have been initially selected for the 2001 sample based on the criterion of an accounting period that ended between December 2001 and November 2002, but it was later rejected because, in actuality, it was a Tax Year 2002 return. The information presented in this article was obtained from returns as originally filed with the Internal Revenue Service. The data were subjected to comprehensive testing and correction procedures in order to improve statistical reliability and validity. In most cases, due to time constraints, changes made to the original return as a result of administrative processing, audit procedures, or a taxpayer amendment were not incorporated into the database. Because the data are based on a sample, they are subject to sampling error. In order to use these statistics properly, the magnitude of the sampling error, measured by the coefficient of variation (CV), should be taken into account. Figure H shows CV’s for selected financial data. CV’s are not shown for
Figure H
Coefficients of Variation for Selected Items, by Size of Gross Unrelated Business Income, Tax Year 2001
Gross Number unrelated Size of gross unrelated business income of returns income Total business deductions Unrelated business taxable income Total tax
Coefficient of variation (percentages) (1) Total................................. $1,000 under $10,001 ¹....... $10,001 under $100,000 ¹... $100,000 under $300,000... $300,000 or more................ 0.12 3.11 2.78 2.39 N/A (2) 0.21 4.91 2.18 1.89 N/A (3) 0.32 12.28 3.34 2.28 N/A (4) 0.98 10.46 6.78 6.11 N/A (5) 0.88 11.20 8.07 7.33 N/A
N/A - Not applicable because the achieved sample rate was 100 percent. ¹ Organizations with gross unrelated business income (UBI) between $1,000 (the filing threshold) and $10,000 were not required to report itemized expenses and deductions, or to complete return schedules. Those with gross UBI over $10,000 were required to fill out a more detailed "complete" return.
Unrelated Business Income Tax Returns, Tax Year 2001
returns with gross UBI of $300,000 or more because they were sampled at a 100-percent rate and, therefore, are not subject to sampling variability. A discussion of the reliability of estimates based on samples and methods for evaluating both the magnitude of sampling and nonsampling error and the precision of sample estimates can be found in the general Appendix, located near the back of this issue of the SOI Bulletin.
Explanation of Selected Terms
In some of the following explanations, tax-exempt organizations are cited by the Internal Revenue Code section under which they are described. The various types of tax-exempt organizations subject to the unrelated business income tax provisions are described by Code section in the Appendix to this article. In addition to helping the reader understand the terms contained in the written content of this article, these explanations are also helpful when using Tables 1 through 7 at the end of the article. Advertising Income.--Gross income realized by a tax-exempt organization from the sale of advertising in a periodical was gross income from an unrelated trade or business activity involving the “exploitation of an exempt activity,” namely, the circulation and readership of the periodical developed by producing and distributing the readership content of that periodical. Advertising income was reported separately from other types of “exploited exempt activity income.” (See the explanation of Exploited Exempt Activity Income.) Internal Revenue Code section 501(c)(7), (9), and (17) organizations reported gross advertising income, as well as other types of “exploited exempt activity income,” as part of gross receipts from sales and services. All other organizations reported this income separately. Capital Gain Net Income.--Generally, organizations required to file Form 990-T (except organizations tax-exempt under Internal Revenue Code sections 501(c)(7), (9), and (17)) were not taxed on net gains from the sale, exchange, or other disposition of property. However, capital gain net income on sales of debt-financed property, certain gains on the cutting of timber (section 1231), and gains on sales of certain depreciable property (described in sections 1245, 1250, 1252, 1254, and 1255) were taken into account in computing capital gain net income. Also, any gain or loss passed through from a partnership or
S corporation, or any gain or loss on the disposition of S corporation stock by a “qualified tax-exempt” (defined in the explanation of Income (Less Loss) from Partnerships and S Corporations), was taxed as a capital gain or loss. (See the explanation of Investment Income (Less Loss) for information regarding investment income of section 501(c)(7), (9), and (17) organizations.) Contributions.--To the extent permissible under the Internal Revenue Code, a deduction was allowed for contributions or gifts actually paid within the tax year to, or for the use of, another entity that was a charitable or Governmental organization described in Code section 170(c). A tax-exempt corporation was allowed a deduction for charitable contributions up to 10 percent of its unrelated business taxable income (UBTI) computed without regard to the deduction for contributions. A tax-exempt trust was generally allowed a deduction for charitable contributions under the rules applicable to individual taxpayers, except that the limit on the deduction was determined in relation to UBTI computed without regard to the contributions deduction, rather than in relation to adjusted gross income. Contributions in excess of the respective corporate or trust limitations may be carried over to the next 5 taxable years, subject to certain rules. The contributions deduction was allowed whether or not directly connected with the carrying on of a trade or business. Cost of Sales and Services.--Cost of sales and services was reported as a lump-sum total, but may have included depreciation, salaries and wages, and certain other types of deductible items. For this reason, the total amount shown for some of the separately reported components of total deductions, such as “salaries and wages,” may be understated. Cost of sales and services was subtracted from gross receipts from sales and services in computing gross profit (less loss) from sales and services, which is a component of gross unrelated business income (UBI). Because Form 990-T filing requirements are based on gross UBI, and cost of sales and services is factored into the computation of gross income, the deduction for cost of sales and services is reported in the gross income section of Form 990-T, not the deductions section. Deductions Directly Connected With Unrelated Business Income.--These were deductions allowed in computing net income, if they otherwise
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70
qualified as income tax deductions under the Internal Revenue Code and if they had a “proximate and primary” relationship to carrying on an unrelated trade or business. Allowable deductions included those allocable to rental of personal property; those allocable to unrelated debt-financed income; those allocable to investment income of Internal Revenue Code section 501(c)(7), (9), and (17) organizations; those allocable to interest, annuities, royalties, and rents received from “controlled organizations” (see definition of Income from Controlled Organizations); those allocable to “exploited exempt activity income” other than advertising; direct advertising costs; compensation of officers, directors, and trustees; salaries and wages; repairs and maintenance; bad debts; interest; taxes and licenses; depreciation (unless deducted elsewhere); depletion; contributions to deferred compensation plans; contributions to employee benefit plans; the “net operating loss deduction”; and “other deductions.” Tax-exempt organizations with gross unrelated business income (UBI) above $10,000 were required to report each deduction component separately. Organizations with gross UBI between $1,000 (the filing threshold) and $10,000 reported a single total of the first five types of directly-connected expenses listed above (those described as “allocable to”) and a single total for all other types of deductions (both deductions directly connected with UBI and those not directly connected, each defined elsewhere in this section), except for two items that were required to be reported separately: the “net operating loss deduction” (directly connected) and the “specific deduction” (not directly connected), both also defined below. Deductions Not Directly Connected With Unrelated Business Income.--The component deductions were “set-asides,” “excess exempt expenses,” charitable contributions, and the “specific deduction.” The specific deduction was reported, when applicable, by all organizations with positive taxable income; the other types of deductions not directly connected with UBI were reported separately, when applicable, only by tax-exempt organizations with gross UBI above $10,000. (See, also, the explanations of Set-Asides, Excess Exempt Expenses, Contributions, and the Specific Deduction.) Excess Exempt Expenses.--The two types of “excess” expenses allowed as deductions from
unrelated business income were (1) excess exempt expenses attributable to commercial exploitation of exempt activities, and (2) excess exempt expenses attributable to advertising income. In the case of “exploited” exempt activity income (see the explanation of Exploited Exempt Activity Income, Except Advertising, below), if the expenses of the organization’s exempt activity exceeded the income from the exempt activity, then the excess expenses could be used to offset any positive net unrelated business income produced from exploiting the exempt activity, to the extent that it did not result in a loss. Excess expenses of a commercially exploited exempt activity could not be used to offset income from another type of unrelated business activity if the unrelated activity did not exploit that particular exempt activity. In the case of excess exempt expenses attributable to advertising income, if the expenses attributable to producing and distributing the readership content of a periodical exceeded the circulation income, then the excess of readership costs over circulation income could be used to offset any net gain from advertising (gross advertising income less direct advertising costs), to the extent that it did not result in a loss. Exploited Exempt Activity Income, Except Advertising.--In some cases, exempt activities create goodwill or other intangibles that are capable of being exploited in a commercial manner. When an organization exploited such an intangible in commercial activities that did not contribute importantly to the accomplishment of an exempt purpose, the income it produced was gross income from an unrelated trade or business. An example of this type of activity would be an exempt scientific organization with an excellent reputation in the field of biological research that exploits its reputation regularly by selling endorsements of laboratory equipment to manufacturers. Endorsing laboratory equipment would not have contributed importantly to the accomplishment of any purpose for which tax exemption was granted to the organization. Accordingly, the income from selling such endorsements is gross unrelated business income. Exploited exempt activity income from advertising was reported separately from other types of exploited exempt activity income (see the explanation of Advertising Income). Internal Revenue Code section 501(c)(7), (9), and (17) organizations reported
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Unrelated Business Income Tax Returns, Tax Year 2001
income from exploited exempt activities as part of gross receipts from sales and services. All other organizations reported this income separately. Gross Profit (Less Loss) from Sales and Services.--This was the gross profit (less loss) from any unrelated trade or business regularly carried on that involved the sale of goods or performance of services. It did not include income from unrelated business activities that were required to be reported separately on any of the tax form’s supporting schedules. For example, an Internal Revenue Code section 501(c)(7) social club would include gross restaurant and bar receipts from nonmembers in the calculation of gross profit (less loss) from sales and services, but would report its investment income from sales of securities on the required supporting schedule. Gross profit (less loss) from sales and services is computed as gross receipts from sales or services, less returns and allowances, minus cost of sales and services. Gross Unrelated Business Income (UBI).--This was the total gross unrelated business income prior to reduction by allowable deductions used in computing unrelated business taxable income. All organizations were required to report detailed sources of gross UBI. The components of gross UBI were gross profit (less loss) from sales and services; capital gain net income; net gain (less loss) from sales of noncapital assets; net capital loss deduction (trusts only); income (less loss) from partnerships and S corporations; rental income; unrelated debt-financed income; investment income (less loss) of Internal Revenue Code section 501(c)(7), (9), and (17) organizations; income (annuities, interest, rents, and royalties) from controlled organizations; “exploited exempt activity” income, except advertising; advertising income; and “other” income (less loss). (For an explanation of these sources of income, see the separate explanations of each component.) A tax-exempt organization’s income was treated as unrelated business income if it was from a trade or business that was regularly carried on by the organization and that was not substantially related to the performance of the organization’s exempt purpose or function (other than that the organization needed the profits derived from the unrelated activity). The term “trade or business” generally comprised any activities carried on for the production of income from selling goods or performing services. These activities did
not lose their identity as trades or businesses merely because they were carried on within a larger aggregate of similar activities or within a larger complex of other endeavors that may, or may not, have been related to the exempt purposes of the organization. For example, soliciting, selling, or publishing commercial advertising is identified as a trade or business even though the advertising is published in an exempt organization’s periodical that contains editorial matter related to the organization’s exempt purpose. Income from Controlled Organizations.-When an exempt organization controls another organization, the entire amount of gross annuities, interest, rents, and royalties (termed “specified payments”) received from the controlled organization is included in the gross UBI of the controlling organization, to the extent that the specified payments were claimed as a deduction from the controlled organization’s own UBI (in the case of an exempt controlled organization) or the “equivalent” of UBI (in the case of a nonexempt controlled organization). The equivalent of UBI was computed as if the nonexempt controlled organization were exempt and had the same exempt purpose as the controlling organization. “Control” meant: (a) for a stock corporation, the ownership (by vote or value) of more than 50 percent of the stock; (b) for a partnership, ownership of more than 50 percent of the profits or capital interests; or (c) for any other organization, ownership of more than 50 percent of the beneficial interests. All deductions “directly connected” with a Form 990-T filer’s gross controlled-organization income were allowed. The rules for debt-financed property did not apply to passive income (generally, investment income) from controlled organizations. (See the definition of Unrelated Debt-Financed Income.) Income (Less Loss) from Partnerships and S Corporations.--If an organization was a partner in any partnership that carried on an unrelated trade or business, this income item included the organization’s share of partnership gross unrelated business income less its share of partnership deductions that were directly connected with the unrelated income. If an organization was a “qualified tax-exempt” that held stock in an S corporation, this income item included the income or loss from the stock interest. The stock interest was treated as an unrelated trade or business, and all items of income, loss, or deduction were
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72
taken into account in computing unrelated business taxable income. A “qualified tax-exempt” was an organization described in Internal Revenue Code section 401(a) (qualified stock bonus, pension, or profit-sharing plan) or section 501(c)(3), and exempt from tax under section 501(a). Investment Income (Less Loss).--This income was reported only by organizations exempt under Internal Revenue Code sections 501(c)(7), (9), and (17) and included such income as gross unrelated debt-financed income, gross income from the ownership or sale of securities, and set-asides deducted from investment income in previous years that were subsequently used for a purpose other than that for which a deduction was allowed. (See, also, the explanation of Set-Asides.) All gross rents (except those that were exempt-function income) of section 501(c)(7), (9), and (17) organizations were treated as unrelated business income and were reported as “rental income.” Organizations exempt under sections other than 501(c)(7), (9), and (17) did not report “investment income (less loss).” Generally, these organizations’ investment income (dividends, interest, rents, and annuities) and royalty income were not taxed as unrelated business income, unless it was income, other than dividends, from a controlled organization or debt-financed income, or the rents were of the type described in the explanation of rental income. (See explanations of Income from Controlled Organizations, Rental Income, and Unrelated DebtFinanced Income.) Net Capital Loss (Trusts Only).--If a trust had a net loss from sales or exchanges of capital assets, it was allowed a deduction for the amount of the net loss or $3,000, whichever was lower. (Tax-exempt corporations were not allowed to deduct any excesses of capital losses over capital gains.) Taxexempt trusts reported the net capital loss deduction on Form 990-T as a component of gross unrelated business income, and it was subtracted when computing total gross UBI. Net Gain (Less Loss), Sales of Noncapital Assets.--This was the gain or loss from the sale or exchange of business property, as reported on Form 4797, Sales of Business Property. Property other than capital assets generally included property of a business nature, in contrast to personal and investment properties, which were capital assets.
Net Operating Loss Deduction (NOLD).--The net operating loss carryover or carryback (as described in Internal Revenue Code section 172) was allowed as a deduction (limited to the current-year excess of receipts over deductions, prior to applying the NOLD) in computing unrelated business taxable income. However, the net operating loss carryover or carryback (allowed only to or from a tax year for which the organization was subject to tax on unrelated business income) was determined without taking into account any amount of exempt-function income or deductions that had been excluded from the computation of unrelated business taxable income. A “net operating loss” represented the excess of deductions over receipts for a specified year for which an organization reported an overall deficit from its unrelated trade or business activities. The net operating loss deduction statistics in this article represent only net operating loss carryovers from prior years because carrybacks from future years would be reported in a later year on an amended return, not on the return as initially filed (which served as the basis for the statistics). Other Deductions.--This included all types of unrelated business deductions that were not specifically required to be reported elsewhere on the tax return. Examples are fees for accounting, legal, consulting, or financial management services; insurance costs (if not for employee-related benefits); equipment costs; mailing costs; office expenses, such as janitorial services, supplies, or security services; rent; travel expenses; educational expenses; and utilities. Other Income (Less Loss).--This included all types of unrelated business income that were not specifically required to be reported elsewhere on the tax return. Examples are insurance benefit fees; member support fees; commissions; returned contributions that were deducted in prior years; income from insurance activities that was not properly set aside in prior years; recoveries of bad debts; and refunds of State or local government tax payments, if the payments were previously reported as a deduction. Proxy Tax.--This was a tax on certain nondeductible lobbying and political expenditures. A membership organization that was tax-exempt under Internal Revenue Code sections 501(c)(4), 501(c)(5), or 501(c)(6) was liable for the proxy tax if the organi-
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Unrelated Business Income Tax Returns, Tax Year 2001
zation did not notify its members of the shares of their dues that were allocated to the nondeductible lobbying and political expenditures, or if the notice did not include the entire amount of dues that was allocated. The proxy tax was computed as 35 percent of the aggregate amount of nondeductible lobbying expenditures that was not included in the notices sent to the organization’s members. The proxy tax was required to be reported on Form 990-T and was included in total tax; however, there was no connection between the proxy tax and the taxation of income from an organization’s unrelated business activities. Rental Income.--For organizations tax-exempt under Internal Revenue Code sections other than 501(c)(7), (9), and (17), this was the amount of (1) gross rents from personal property (e.g., computer equipment or furniture) leased with real property, if the rental income from the personal property was more than 10 percent, but not more than 50 percent, of the total rents from all leased property; or (2) gross rents from both real property and personal property leased with real property if the personal property was more than 50 percent of the total rents from all leased property. Except for the second situation covered above, gross rents from real property were generally excluded in computing unrelated business taxable income. In addition, gross rents from personal property that did not exceed 10 percent of the total rents from all leased property were excluded (and not included in gross UBI). Any rents not covered by the explanation of “rental income” had to be considered in terms of their taxability as unrelated business income from controlled organizations or unrelated debt-financed income, in that order. For organizations tax-exempt under sections 501(c)(7), (9), and (17), rental income included all gross rents (except those that were exempt-function income), with no exclusions. (See explanations of Income from Controlled Organizations and Unrelated Debt-Financed Income.) Set-Asides.--This deduction from investment income was allowed to social and recreational clubs (Internal Revenue Code section 501(c)(7)), voluntary employees’ beneficiary associations (section 501(c)(9)), and supplemental unemployment benefit trusts (section 501(c)(17)). The deduction was equal to the amount of passive income (generally, investment income) that these organizations set aside (1) to
be used for charitable purposes or (2) to provide payment of life, health, accident, or other insurance benefits (section 501(c)(9) and (17) organizations only). However, any amounts set aside that exceeded the “qualified asset account” limit, as figured under section 419A, were not allowed as a deduction from unrelated business investment income; they were treated as taxable investment income. A section 419A qualified asset account is any account consisting of assets set aside to provide for the payment of disability benefits, medical benefits, severance pay benefits, or life insurance benefits. Specific Deduction.--The specific deduction was $1,000 or the amount of positive taxable income, whichever was less. The amount deducted was considered “not directly connected” with gross unrelated business income and was allowed to all organizations that had positive taxable income after all other types of deductions were taken. This deduction provided the equivalent benefit of the $1,000 gross unrelated business income filing threshold under which some organizations were exempted from filing a return and paying the unrelated business income tax. Total Deductions.--Total deductions included both deductions reported on the main part of Form 990-T and expense items reported on any of six supporting schedules, which were also part of the tax form. It excluded cost of sales and services ($2.3 billion for 2001), which was subtracted from gross receipts from sales and services in computing gross profit (less loss) from sales and services, which is a component of gross unrelated business income (UBI). (See the explanation of Cost of Sales and Services.) Total Tax.--Total tax was unrelated business income tax less the foreign tax credit, general business credit, credit for prior-year minimum tax, and other allowable credits, plus the “proxy tax” on certain lobbying and political expenditures, the “alternative minimum tax,” and “other” taxes. Unrelated Business Income (UBI).--See definition of Gross Unrelated Business Income (UBI). Unrelated Business Income Tax.--This was the tax imposed on unrelated business taxable income. It was determined based on the regular corporate or trust income tax rates that were in effect for the 2001 Tax Year, as shown in the following schedules.
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Unrelated Business Income Tax Returns, Tax Year 2001
Tax Rates for Corporations Amount of unrelated business taxable income is:
Over— But not over— Tax is: Of the amount over—
$0 $50,000 15% $0 50,000 75,000 $7,500 + 25% 50,000 75,000 100,000 13,750 + 34% 75,000 100,000 335,000 22,250 + 39% 100,000 335,000 10,000,000 113,900 + 34% 335,000 10,000,000 15,000,000 3,400,000 + 35% 10,000,000 15,000,000 18,333,333 5,150,000 + 38% 15,000,000 18,333,333 -35% 0
Tax Rates for Trusts Amount of unrelated business taxable income is: Over—
74
But not over— $1,800 4,250 6,500 8,900 --
Of the amount Tax is: over— 15% $262.50 + 27.5% 934.50 + 30.5% 1,601.00 + 35.5% 2,482.00 + 39.1% $0 1,800 4,250 6,500 8,900
$0 1,800 4,250 6,500 8,900
income (UBI) tax. The percentage of investment income to be included as gross UBI was proportional to the ratio of average acquisition indebtedness to the average adjusted basis of the property. Various types of passive income (generally, investment income) were considered to be unrelated debt-financed income, but only if the income arose from property acquired or improved with borrowed funds and if the production of income was unrelated to the organization’s tax-exempt purpose. When any property held for the production of income by an organization was disposed of at a gain during the tax year, and there was acquisition indebtedness outstanding at any time during the 12-month period prior to the date of disposition, the property was considered debtfinanced property, and the gain was treated as unrelated debt-financed income. Income from debtfinanced property did not include rents from personal property (e.g., computers or furniture) leased with real property, certain passive income (generally, investment income) from controlled organizations, and other amounts that were otherwise included in computing unrelated business taxable income. Internal Revenue Code section 501(c)(7), (9), and (17) organizations reported all debt-financed income as “Investment Income (Less Loss).” All other organizations reported debt-financed income separately.
Notes and References
[1] Organizations with unrelated business income tax liability may have been liable for the alternative minimum tax (AMT) on certain adjustments and tax preference items. In addition to reporting AMT on Form 990-T, tax-exempt trusts with AMT were required to attach Form 1041, Schedule I, Alternative Minimum Tax, and taxexempt corporations with AMT were required to attach Form 4626, Alternative Minimum Tax--Corporations. [2] The proxy tax is required to be reported on Form 990-T and is included in total tax, but it has no connection to the unrelated business income tax or an organization’s involvement in unrelated business activities. A tax-exempt membership organization was liable for the proxy tax on certain nondeductible lobbying and political expenditures if the organization did not notify its members of the shares of their dues that were
74
Unrelated Business Taxable Income (Less Deficit).--This was gross income derived from any unrelated trade or business regularly carried on by an exempt organization, less deductions directly connected with carrying on the trade or business and less other allowable deductions not directly connected. On a return-by-return basis, the result of this computation was either positive (unrelated business taxable income), negative (deficit), or zero. Taxable income was subject to the unrelated business income tax. (See, also, explanations of Deductions Directly Connected With Unrelated Business Income and Deductions Not Directly Connected With Unrelated Business Income.) Unrelated Debt-Financed Income.--Gross income from investment property for which acquisition indebtedness was outstanding at any time during the tax year was subject to the unrelated business
Unrelated Business Income Tax Returns, Tax Year 2001
allocated to the nondeductible expenditures, or if the notice did not include the entire amount of dues that was allocated. (See “Proxy Tax” in the Explanation of Selected Terms section of this article for more information.) The $1.4 million of proxy tax shown in the total tax computation is only that reported by Form 990-T filers with gross unrelated business income above the $1,000 filing threshold, a criterion for selection for the Statistics of Income (SOI) sample. Proxy tax reported by organizations that had no UBI or those that had UBI below the filing threshold is not included. [3] The amount of total tax liability originally reported on Forms 990-T, as stated in these statistics, may not necessarily be the amount ultimately paid to the Internal Revenue Service (IRS). Changes in tax liability assessments can be made after the original return is filed, either by the taxpayer on an amended return, by the IRS after examination, or by rulings of the U.S. tax courts after litigation. [4] A business activity is considered unrelated if it does not contribute importantly (other than the production of funds) to accomplishing an organization’s charitable, educational, or other purpose that is the basis for the organization’s tax exemption. In determining whether activities contribute importantly to the accomplishment of an exempt purpose, the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt function that they intend to serve. To the extent an activity is conducted on a scale larger than is reasonably necessary to perform an exempt purpose, it does not contribute importantly to the accomplishment of the exempt purpose. The part of the activity that is more than needed to accomplish the exempt purpose is an unrelated trade or business. Whether an activity contributes importantly depends in each case on the facts involved. See IRS Publication 598, Tax on Unrelated Business Income of Exempt Organizations, for additional information on unrelated business income and tax. The following is a case example from Publication 598. An American folk art museum oper-
ates a shop in the museum that sells reproductions of works in the museum’s own collection and also works from the collections of other art museums. In addition, the museum sells souvenir items of the city where the museum is located. The sale of the reproductions, regardless of which museum houses the original works, is considered to be “related” because it contributes importantly to the achievement of the museum’s exempt educational purpose by making works of art familiar to a broader segment of the public, thereby enhancing the public’s understanding and appreciation of art. However, the sale of souvenir items depicting the city in which the museum is located is considered to be “unrelated” because it has no causal relationship to art or to artistic endeavor, and, therefore, does not contribute importantly to the accomplishment of the museum’s exempt educational purposes. [5] The unrelated business income tax (UBIT) for nonprofit corporations was determined based on the regular corporate income tax rates in effect for the tax year of the Form 990-T filing. Nonprofit trusts were generally taxed at the regular individual (single status) income tax rates established for estates and trusts for the tax year of the Form 990-T filing. Trusts that were eligible for the maximum 28-percent tax rate on capital gain net income figured their tax based on Schedule D of Form 1041, U.S. Income Tax Return for Estates and Trusts. The corporate and trust tax-rate schedules for Tax Year 2001 are included in the definition of Unrelated Business Income Tax, found in the Explanation of Selected Terms section of this article. [6] Churches, which are tax-exempt under Internal Revenue Code section 501(c)(3), are not required to apply for exemption unless they desire to obtain an Internal Revenue Service ruling, and they do not have to file a Form 990 information return. However, these churches are required to file Form 990-T if they received $1,000 or more of gross income from business activities that were considered unrelated to the purposes for which they received tax-exempt status. Private foundations and certain charitable trusts file an information return on Form 990-PF, Return of Private Foundation or
75
Unrelated Business Income Tax Returns, Tax Year 2001
Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation. For the most recent Form 990 annual data on organizations tax-exempt under Internal Revenue Code sections 501(c)(3) (excluding private foundations and most religious organizations) through 501(c)(9), see Arnsberger, Paul D., “Charities and Other Tax-Exempt Organizations, 2001,” Statistics of Income Bulletin, Fall 2004, Volume 24, Number 2. For the most recent annual data on private foundations, see Ludlum, Melissa, “Domestic Private Foundations and Charitable Trusts, 2001,” Statistics of Income Bulletin, Fall 2004, Volume 24, Number 2. Both of these articles are available from the IRS Tax Stats Web site at http://www.irs.gov/taxstats/ index.html. [7] The term “charitable” refers to tax-exempt organizations with purposes that are charitable, educational, scientific, literary, or religious in nature, or organizations that test for public safety or prevent cruelty to children or animals.
The term also covers organizations that otherwise qualified for tax-exempt status under the Income Tax Regulations issued for Internal Revenue Code section 501(c)(3). [8] The Wilshire 5000 Total Market Index was used for analyzing possible effects of financial markets on unrelated business taxable income and tax. This index can be accessed from www.wilshire.com/quote.html. [9] See Executive Office of the President, Office of Management and Budget, North American Industry Classification System: United States, 1997, Berman Press, Lanham, MD, 1998. [10] For additional information on the Forms 990 and 990-T integrated sample design, see Harte, James M. and Hilgert, Cecelia H., “Enriching One Sample While Improving Another: Linking Differently Stratified Samples of Documents Filed by Exempt Organizations,” Statistics of Income: Turning Administrative Systems Into Information Systems, 1993.
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Unrelated Business Income Tax Returns, Tax Year 2001
Appendix Types of Tax-Exempt Organizations Subject to the Unrelated Business Income Tax Provisions, by Internal Revenue Code Section
Code section 220(e) Description of organization Archer Medical Savings Accounts (MSA's) General nature of activities Fiduciary agent for accounts used in conjunction with high-deductible health plans to save funds for future medical expenses Fiduciary agent for pension, profit-sharing, or stock bonus plans Fiduciary agent for retirement funds Fiduciary agent for retirement funds; subject to same rules as traditional IRA's, except contributions are not tax-deductible and qualified distributions are tax-free Holding title to property for exempt organizations Activities of a nature implied by the description of the class of organization
401(a) 408(e) 408A
Qualified pension, profit-sharing, or stock bonus plans Traditional Individual Retirement Accounts (IRA's) Roth Individual Retirement Accounts (IRA's)
501(c)(2) (3)
Title-holding corporations for exempt organizations Religious, educational, charitable, scientific, or literary organizations; testing for public safety organizations. Also, organizations preventing cruelty to children or animals, or fostering national or international amateur sports competition Civic leagues, social welfare organizations, and local associations of employees Labor, agricultural, and horticultural organizations
(4)
Promotion of community welfare and activities from which net earnings are devoted to charitable, educational, or recreational purposes Educational or instructive groups whose purpose is to improve conditions of work, products, and efficiency Improving conditions in one or more lines of business Pleasure, recreation, and social activities Lodges providing for payment of life, health, accident, or other insurance benefits to members Providing for payment of life, health, accident, or other insurance benefits to members Lodges, societies, or associations devoting their net earnings to charitable, fraternal, and other specified purposes, without life, health, or accident insurance benefits to members Fiduciary associations providing for payment of retirement benefits
(5)
(6) (7) (8) (9)
Business leagues, chambers of commerce, real estate boards, and like organizations Social and recreational clubs Fraternal beneficiary societies and associations Voluntary employees' beneficiary associations (including Federal employees' voluntary beneficiary associations formerly covered by section 501(c)(10)) Domestic fraternal beneficiary societies and associations
(10)
(11)
Teachers' retirement fund associations
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Unrelated Business Income Tax Returns, Tax Year 2001
Appendix Types of Tax-Exempt Organizations Subject to the Unrelated Business Income Tax Provisions, by Internal Revenue Code Section--Continued
Code section 501(c)(12) Description of organization Benevolent life insurance associations, mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations General nature of activities Activities of a mutually beneficial nature implied by the description of the class of organization
(13) (14)
Cemetery companies State-chartered credit unions and mutual insurance or reserve funds Mutual insurance companies or associations other than life, if written premiums for the year do not exceed $350,000 Corporations organized to finance crop operations Supplemental unemployment benefit trusts
Arranging for burials and incidental related activities Providing loans to members or providing insurance of, or reserve funds for, shares or deposits in certain banks or loan associations Providing insurance to members, substantially at cost Financing crop operations in conjunction with activities of a marketing or purchasing association Fiduciary agent for payment of supplemental unemployment compensation benefits Providing for payments of benefits under a pension plan funded by employees Providing services to veterans or their dependents; advocacy of veteran's issues; and promotion of patriotism and community service programs Created by coal mine operators to satisfy their liability for disability or death due to black lung disease Providing funds to meet the liability of employers withdrawing from a multiemployer pension fund Providing insurance and other benefits to veterans or their dependents Providing funds for employee retirement income
(15)
(16) (17)
78
(18) (19)
Employee-funded pension trusts (created before June 25, 1959) Posts or organizations of past or present members of the armed forces
(21)
Black Lung Benefit Trusts
(22)
Withdrawal liability payment funds
(23) (24)
Associations of past and present members of the armed forces founded before 1880 Trusts described in section 4049 of the Employee Retirement Income Security Act of 1974 Title-holding corporations or trusts with no more than 35 shareholders or beneficiaries and only one class of stock or beneficial interest
(25)
Acquiring real property and remitting all income earned from such property to one or more exempt organizations; pension, profit-sharing, or stock bonus plans; or governmental units
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Unrelated Business Income Tax Returns, Tax Year 2001
Appendix Types of Tax-Exempt Organizations Subject to the Unrelated Business Income Tax Provisions, by Internal Revenue Code Section--Continued
Code section 501(c)(26) Description of organization State-sponsored health plans General nature of activities Providing coverage for medical care on a not-forprofit basis to residents with pre-existing medical conditions that resulted in denied or exorbitantly priced traditional medical care coverage Pooled employers' funds providing reimbursements to employees for losses arising under workers' compensation acts; also, State-created, -operated, and -controlled organizations providing workers' compensation insurance to employers State- and agency-maintained plans that allow individuals to purchase credits or certificates, or make contributions to an account, to pay for future educational expenses Fiduciary agent for accounts created for the purpose of paying qualified higher education expenses of a designated beneficiary
(27)
State-sponsored workers' compensation plans
529(a)
Qualified State Tuition Plans
530(a)
Coverdell Education Savings Accounts
NOTE: Corporations that are organized under an Act of Congress, and are instrumentalities of the United States, described in section 501(c)(1) of the Internal Revenue Code, are not subject to unrelated business income taxation. Prepaid legal service funds, previously described in section 501(c)(20) of the Internal Revenue Code, were no longer tax-exempt effective with tax years beginning after June 30, 1992.
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Unrelated Business Income Tax Returns, Tax Year 2001
Table 1.--Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Unrelated Business Taxable Income (Less Deficit), Unrelated Business Taxable Income, and Total Tax, by Internal Revenue Code Section Describing Type of Tax-Exempt Organization, Tax Year 2001
[All figures are estimates based on samples--money amounts are in thousands of dollars]
Gross Number Internal Revenue Code section of returns unrelated business income (UBI) (1) All sections................................. 220(e)............................................... 401(a)............................................... 408(e)............................................... 408A................................................. 501(c)(2)........................................... 501(c)(3)........................................... 501(c)(4)........................................... 501(c)(5)........................................... 501(c)(6)........................................... 501(c)(7)........................................... 501(c)(8)........................................... 501(c)(9)........................................... 501(c)(10)......................................... 501(c)(11)......................................... 501(c)(12)......................................... 501(c)(13)......................................... 501(c)(14)......................................... 501(c)(15)......................................... 501(c)(16)......................................... 501(c)(17)......................................... 501(c)(18)......................................... 501(c)(19)......................................... 501(c)(21) ....................................... 501(c)(22)......................................... 501(c)(23)......................................... 501(c)(24)......................................... 501(c)(25)......................................... 501(c)(26)......................................... 501(c)(27)......................................... 529(a)............................................... 530(a)...............................................
6 5
Total deductions 1,2 Number of returns (3) 35,466 -300 2,499 -250 12,607 1,486 2,212 5,569 6,948 583 660 202 -188 *66 105 ----1,738 ---** ** -** --Amount (4) 7,882,907 -43,393 3,879 -95,881 5,080,304 430,220 233,862 860,503 474,924 111,948 285,679 19,990 -70,393 *1,468 39,529 ----126,874 ---** ** -** ---
Unrelated business taxable income (less deficit) Number of returns 3 (5) 27,781 -269 2,450 -232 9,943 1,102 1,682 3,717 5,863 396 409 181 -99 *66 104 ----1,265 ---** ** -** --Amount (6) 17,557 -49,495 9,720 -9,283 -268,465 -10,779 1,164 -867 29,876 -2,494 211,534 -1,871 --4,932 *1,047 -6,464 ----879 ---** ** -** ---
Unrelated business taxable income (7) 791,963 -58,500 9,814 -24,016 292,308 12,098 21,892 62,112 72,491 4,688 212,618 563 -7,898 *1,047 3,010 ----8,089 ---** ** -** ---
Total tax 4 Number of returns (8) 15,308 -187 2,400 -121 4,361 389 734 1,718 4,040 206 333 *66 -64 *66 66 ----556 ---** ** -** --Amount (9) 221,532 -16,437 2,823 -8,057 84,597 3,263 5,648 18,031 14,713 1,059 61,520 *85 -2,589 *263 882 ----1,248 ---** ** -** ---
(2) 7,900,464 -92,887 13,599 -105,164 4,811,839 419,441 235,027 859,635 504,800 109,454 497,213 18,119 -65,461 *2,515 33,066 ----127,753 ---** ** -** ---
35,540 -300 2,499 -250 12,618 1,487 2,213 5,569 6,997 583 672 202 -188 *66 105 ----1,738 ---** ** -** ---
80
80
*Estimate should be used with caution because of the small number of sample returns on which it is based. **Data deleted to avoid disclosure of information for specific taxpayers. However, data are included in the appropriate totals. ¹ Excludes cost of sales and services, which was subtracted from gross receipts from sales and services in computing gross profit from sales and services. Gross profit from sales and services was a component of gross unrelated business income (UBI). Cost of sales and services can include amounts attributable to depreciation, salaries and wages, and certain other deductible items. For all exempt organizations reporting gross UBI, cost of sales and services was $2.3 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ Excludes returns with unrelated business taxable income (less deficit) equal to zero. 4 Total tax is the regular unrelated business income tax after reduction by any tax credits (foreign tax credit, general business credit, prior-year minimum tax credit, and other allowable credits), plus the "alternative minimum tax," the "proxy" tax on nondeductible lobbying and political expenditures, and "other" taxes. The proxy tax was reported on Form 990-T and was included in total tax; however, it had no connection to the tax on unrelated business income or an organization's involvement in unrelated business activities. For exempt organizations reporting gross UBI above the $1,000 filing threshold, total proxy tax was $1.4 million. 5 Corporations that are organized under an Act of Congress and are instrumentalities of the United States, described in section 501(c)(1) of the Internal Revenue Code, are not subject to unrelated business income taxation. 6 Prepaid legal service funds, previously described in section 501(c)(20) of the Internal Revenue Code, were no longer tax-exempt, beginning with tax years after June 30, 1992. Therefore, these organizations are not listed in this table. NOTES: Detail may not add to totals because of rounding. See the Appendix to this article for a listing of the types of tax-exempt organizations, by the Internal Revenue Code section describing them.
Unrelated Business Income Tax Returns, Tax Year 2001
Table 2.--Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Unrelated Business Taxable Income (Less Deficit), Unrelated Business Taxable Income, and Total Tax, by Size of Gross UBI, Tax Year 2001
[All figures are estimates based on samples--money amounts are in thousands of dollars]
Gross Number Size of gross unrelated business income (UBI) of returns unrelated business income (UBI) (1) Total................................................ $1,000 under $10,001 ....................... $10,001 under $100,000 .................... $100,000 under $500,000................... $500,000 under $1,000,000................ $1,000,000 under $5,000,000............. $5,000,000 or more.............................
5 5
Total deductions Number of returns (3) 35,466 12,600 14,645 5,967 1,052 958 244 Amount (4) 7,882,907 58,731 552,226 1,344,677 750,735 1,927,386 3,249,152
1,2
Unrelated business taxable income (less deficit) Number of returns 3 (5) 27,781 9,676 11,551 4,784 835 750 185 Amount (6) 17,557 -7,878 -22,733 -48,672 -10,897 26,427 81,310
Unrelated business taxable income (7) 791,963 13,323 84,662 135,671 71,116 205,823 281,369
Total tax 4 Number of returns (8) 15,308 6,642 5,649 2,228 397 311 80 Amount (9) 221,532 2,077 15,490 35,239 22,069 65,397 81,260
(2) 7,900,464 50,853 529,493 1,296,005 739,839 1,953,814 3,330,462
35,540 12,653 14,659 5,971 1,054 960 244
¹ Excludes cost of sales and services, which was subtracted from gross receipts from sales and services in computing gross profit from sales and services. Gross profit from sales and services was a component of gross unrelated business income (UBI). Cost of sales and services can include amounts attributable to depreciation, salaries and wages, and certain other deductible items. For all exempt organizations reporting gross UBI, cost of sales and services was $2.3 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ Excludes returns with unrelated business taxable income (less deficit) equal to zero.
4
Total tax is the regular unrelated business income tax after reduction by any tax credits (foreign tax credit, general business credit, prior-year minimum tax credit, and other
allowable credits), plus the "alternative minimum tax," the "proxy" tax on nondeductible lobbying and political expenditures, and "other" taxes. The proxy tax was reported on Form 990-T and was included in total tax; however, it had no connection to the tax on unrelated business income or an organization's involvement in unrelated business activities. For exempt organizations reporting gross UBI above the $1,000 filing threshold, total proxy tax was $1.4 million.
5
The gross unrelated business income (UBI) brackets of "$1,000 under $10,001" and "$10,001 under $100,000" reflect the different filing requirements for organizations with
gross UBI of $10,000 or less (not required to report itemized expenses and deductions, or to complete return schedules) and all other Form 990-T filers (required to file a more detailed "complete" return). Organizations with gross UBI below $1,000 were not required to file Form 990-T. NOTE: Detail may not add to totals because of rounding.
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Unrelated Business Income Tax Returns, Tax Year 2001
Table 3.--Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Unrelated Business Taxable Income (Less Deficit), Unrelated Business Taxable Income, and Total Tax, by Size of Unrelated Business Taxable Income or Deficit, Tax Year 2001
[All figures are estimates based on samples--money amounts are in thousands of dollars]
Number Size of unrelated business taxable income or deficit of returns
Gross unrelated business income (UBI)
Total 1,2 deductions Number of returns (3) 35,466 12,505 7,759 3,279 6,588 4,455 672 85 123 Amount (4) 7,882,907 4,485,226 1,611,981 57,866 205,390 583,089 479,783 108,404 351,169
Unrelated business taxable income (less deficit) Number of returns (5) 27,781 12,505 -3,279 6,640 4,469 676 87 125 Amount (6) 17,557 -774,406 -1,500 27,724 137,294 145,962 60,281 419,202 Number of returns (7)
Total tax 3
Amount (8) 221,532 717 445 224 4,217 25,192 45,855 20,501 124,381
(1) Total...................................................... Deficit........................................................ Zero ......................................................... $1 under $1,000........................................ $1,000 under $10,000............................... $10,000 under $100,000........................... $100,000 under $500,000......................... $500,000 under $1,000,000...................... $1,000,000 or more...................................
4
(2) 7,900,464 3,710,819 1,611,981 59,366 233,114 720,383 625,745 168,685 770,371
35,540 12,505 7,759 3,279 6,640 4,469 676 87 125
15,308 83 116 3,254 6,579 4,397 669 87 123
¹ Excludes cost of sales and services, which was subtracted from gross receipts from sales and services in computing gross profit from sales and services. Gross profit from sales and services was a component of gross unrelated business income (UBI). Cost of sales and services can include amounts attributable to depreciation, salaries and wages, and certain other deductible items. For all exempt organizations reporting gross UBI, cost of sales and services was $2.3 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ Total tax is the regular unrelated business income tax after reduction by any tax credits (foreign tax credit, general business credit, prior-year minimum tax credit, and other allowable credits), plus the "alternative minimum tax," the "proxy" tax on nondeductible lobbying and political expenditures, and "other" taxes. The proxy tax was reported on Form 990-T and was included in total tax; however, it had no connection to the tax on unrelated business income or an organization's involvement in unrelated business activities. For exempt organizations reporting gross UBI above the $1,000 filing threshold, total proxy tax was $1.4 million.
4
The Zero category includes "breakeven" returns with equal amounts of gross unrelated business income and total deductions.
82
NOTE: Detail may not add to totals because of rounding.
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Unrelated Business Income Tax Returns, Tax Year 2001
Table 4.--Returns with Positive Unrelated Business Taxable Income: Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Unrelated Business Taxable Income, and Total Tax, by Type of Entity and Size of Gross UBI, Tax Year 2001
[All figures are estimates based on samples--money amounts are in thousands of dollars]
Gross Type of entity and size of gross unrelated business income (UBI) Number of returns unrelated business income (UBI) (1) ALL ENTITIES Total......................................................................... $1,000 under $10,001................................................... 4 $10,001 under $100,000 .............................................. $100,000 under $500,000............................................. $500,000 under $1,000,000.......................................... $1,000,000 under $5,000,000....................................... $5,000,000 or more...................................................... TAX-EXEMPT CORPORATIONS Total......................................................................... $1,000 under $10,001 ................................................ 4 $10,001 under $100,000 ............................................ $100,000 under $500,000............................................. $500,000 under $1,000,000.......................................... $1,000,000 under $5,000,000....................................... $5,000,000 or more...................................................... TAX-EXEMPT TRUSTS Total......................................................................... $1,000 under $10,001 ................................................ 4 $10,001 under $100,000 ............................................ $100,000 under $500,000............................................. $500,000 under $1,000,000.......................................... $1,000,000 under $5,000,000....................................... $5,000,000 or more......................................................
4 4 4
Total deductions Number of returns (3) Amount (4)
1,2
Total Unrelated business taxable income tax Number of returns (6) Amount (7)
3
(2)
(5)
15,277 6,596 5,652 2,225 411 316 77
2,577,664 23,841 190,599 506,451 287,229 633,493 936,052
15,202 6,543 5,638 2,221 409 314 77
1,785,700 10,518 105,937 370,780 216,112 427,670 654,683
791,963 13,323 84,662 135,671 71,116 205,823 281,369
15,109 6,593 5,581 2,161 392 307 76
220,371 2,074 15,052 34,871 22,018 65,328 81,027
12,174 4,345 5,093 2,042 377 256 62
2,116,138 19,672 175,746 466,579 263,250 507,279 683,611
12,112 4,292 5,089 2,038 376 255 62
1,646,970 8,226 102,743 362,088 209,889 395,354 568,671
469,167 11,446 73,003 104,492 53,360 111,925 114,941
12,013 4,342 5,021 1,979 359 250 61
127,352 1,766 11,493 23,683 15,911 35,560 38,939
3,103 2,251 559 184 34 60 15
461,526 4,168 14,853 39,871 23,979 126,214 252,440
3,091 2,251 549 184 33 59 15
138,730 2,292 3,194 8,692 6,223 32,317 86,012
322,796 1,877 11,659 31,179 17,756 93,897 166,428
3,097 2,251 559 182 33 57 15
93,019 308 3,559 11,189 6,107 29,768 42,088
¹ Excludes cost of sales and services, which was subtracted from gross receipts from sales and services in computing gross profit from sales and services. Gross profit from sales and services was a component of gross unrelated business income (UBI). Cost of sales and services can include amounts attributable to depreciation, salaries and wages, and certain other deductible items. For exempt organizations reporting positive unrelated business taxable income, cost of sales and services was $707.5 million, of which $697.8 million were attributable to tax-exempt corporations. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ Total tax is the regular unrelated business income tax after reduction by any tax credits (foreign tax credit, general business credit, prior-year minimum tax credit, and other allowable credits), plus the "alternative minimum tax," the "proxy" tax on nondeductible lobbying and political expenditures, and "other" taxes. The proxy tax was reported on Form 990-T and was included in total tax; however, it had no connection to the tax on unrelated business income or an organization's involvement in unrelated business activities. For exempt organizations reporting positive unrelated business taxable income, total proxy tax was $0.7 million.
4 The gross unrelated business income (UBI) brackets of "$1,000 under $10,001" and "$10,001 under $100,000" reflect the different filing requirements for organizations with gross UBI of $10,000 or less (not required to report itemized expenses and deductions, or to complete return schedules) and all other Form 990-T filers (required to file a
more detailed "complete" return). Organizations with gross UBI below $1,000 were not required to file Form 990-T. NOTE: Detail may not add to totals because of rounding.
83
Unrelated Business Income Tax Returns, Tax Year 2001
Table 5.--Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Unrelated Business Taxable Income (Less Deficit), Unrelated Business Taxable Income, and Total Tax, by Primary Unrelated Business Activity or Industrial Grouping, Tax Year 2001
[All figures are estimates based on samples--money amounts are in thousands of dollars]
Number Primary unrelated business activity or industrial grouping of returns
Gross unrelated business income (UBI)
Total 1,2 deductions Number of returns (3) 35,466 252 183 23 63 223 *126 1,515 45 733 8,656 744 3,596 308 4,008 5,985 520 5,465 8,026 33 700 61 991 3,915 2,897 602 194 241 Amount (4) 7,882,907 28,857 19,977 24,318 7,242 64,764 *13,486 451,599 10,663 186,825 1,261,473 65,207 401,753 173,549 620,965 843,248 101,067 742,181 1,805,501 15,318 294,664 23,523 1,382,559 623,605 586,223 160,418 57,010 21,634
Unrelated business taxable income (less deficit) Number of returns 3 (5) 27,781 170 178 23 *50 175 *116 1,207 44 572 7,357 708 2,866 238 3,545 4,795 395 4,400 5,091 33 543 52 833 3,149 2,502 524 131 237 Amount (6) 17,557 12,846 3,690 -2,182 *-407 -7,989 *-9,974 -31,312 -1,182 -6,971 359,038 23,455 236,510 42,918 56,155 -4,600 -3,324 -1,276 -71,390 9,684 -26,823 -3,681 -91,867 -37,940 -60,471 -8,981 249 -2,181
Unrelated business taxable income
Total tax 4 Number of returns (8) 15,308 133 124 *16 *36 77 *53 487 *17 316 6,140 515 2,520 165 2,940 2,389 211 2,178 2,181 34 228 *39 298 1,423 777 313 108 121 Amount (9) 221,532 5,327 2,546 *396 *92 3,265 *33 5,940 *550 7,106 117,056 11,388 66,026 13,603 26,038 27,083 829 26,254 19,402 3,368 4,104 *409 13,973 4,380 3,502 1,313 1,316 372
(1) All activities and groupings......................... Agriculture, forestry, hunting, and fishing........... Mining................................................................. Utilities................................................................ Construction....................................................... Manufacturing..................................................... Wholesale trade................................................. Retail trade......................................................... Transportation and warehousing........................ Information......................................................... Finance and insurance, total.............................. Unrelated debt-financed activities, other than rental of real estate ................... Investment activities of Code section 501(c)(7), (9), and (17) organizations......... Passive income activities with
5 controlled organizations............................. 5, 6 5
(2) 7,900,464 41,703 23,666 22,135 6,835 56,775 *3,512 420,287 9,481 179,854 1,620,512 88,662 638,263 216,467 677,120 838,648 97,743 740,905 1,734,111 25,002 267,841 19,843 1,290,692 585,665 525,752 151,437 57,259 19,453
(7) 791,963 16,241 8,457 *1,281 *613 9,690 *223 21,339 *1,756 18,919 421,390 36,237 241,432 60,048 83,672 95,766 4,286 91,480 71,199 9,684 14,279 *948 43,570 24,904 18,453 6,196 4,937 2,116
35,540 253 183 23 63 225 *126 1,515 45 735 8,718 744 3,656 308 4,009 5,986 521 5,465 8,026 34 700 61 994 3,918 2,897 602 194 241
84
Other finance and insurance .......................... Real estate and rental and leasing, total............ Rental of personal property ........................... Other real estate and rental and leasing........ Professional, scientific, and technical services.. Management of companies and enterprises...... Administrative and support and waste management and remediation services......... Educational services.......................................... Healthcare and social assistance....................... Arts, entertainment, and recreation.................... Accommodation and food services.................... Other services.................................................... Exploited exempt activities................................. Not allocable......................................................
* Estimate should be used with caution because of the small number of sample returns on which it is based. ¹ Excludes cost of sales and services, which was subtracted from gross receipts from sales and services in computing gross profit from sales and services. Gross profit from sales and services was a component of gross unrelated business income (UBI). Cost of sales and services can include amounts attributable to depreciation, salaries and wages, and certain other deductible items. For all exempt organizations reporting gross UBI, cost of sales and services was $2.3 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ Excludes returns with unrelated business taxable income (less deficit) equal to zero. 4 Total tax is the regular unrelated business income tax after reduction by any tax credits (foreign tax credit, general business credit, prior-year minimum tax credit, and other allowable credits), plus the "alternative minimum tax," the "proxy" tax on nondeductible lobbying and political expenditures, and "other" taxes. The proxy tax was reported on Form 990-T and was included in total tax; however, it had no connection to the tax on unrelated business income or an organization's involvement in unrelated business activities. For exempt organizations reporting gross UBI above the $1,000 filing threshold, total proxy tax was $1.4 million. 5 See the Explanation of Selected Terms section of this article for definitions of Unrelated Debt-Financed Income, Investment Income (Less Loss), and Income from Controlled Organizations. 6 Section 501(c)(7) organizations are social and recreational clubs; section 501(c)(9) organizations are voluntary employees' beneficiary associations, and section 501(c)(17) organizations are supplemental unemployment benefit trusts. NOTE: Detail may not add to totals because of rounding.
84
Unrelated Business Income Tax Returns, Tax Year 2001
Table 6.--Sources of Gross Unrelated Business Income (UBI), by Size of Gross UBI, Tax Year 2001
[All figures are estimates based on samples--money amounts are in thousands of dollars]
Sources of gross unrelated business income (UBI) ¹ Gross unrelated business income (UBI) Size of gross unrelated business income (UBI) Number of returns (1) Total............................................................... $1,000 under $10,001 ..................................... $10,001 or more, total .................................... $10,001 under $100,000................................ $100,000 under $500,000.............................. $500,000 under $1,000,000........................... $1,000,000 under $5,000,000........................ $5,000,000 or more........................................
2,3 2
Gross profit (less loss) from sales and services Number
Capital gain net income Number of returns Amount
Amount
of returns
Amount
(2) 7,900,464 50,853 7,849,612 529,493 1,296,005 739,839 1,953,814 3,330,462
(3) 14,816 2,564 12,252 6,984 3,779 693 625 171
(4) 4,330,117 9,765 4,320,353 226,757 692,028 398,226 1,059,691 1,943,650
(5) 941 *203 737 525 116 32 44 20
(6) 218,567 *575 217,992 8,891 11,640 11,955 41,610 143,896
35,540 12,653 22,888 14,659 5,971 1,054 960 244
Sources of gross unrelated business income (UBI) ¹--Continued Net capital loss Size of gross unrelated business income (UBI) Number of returns (7) Total............................................................... $1,000 under $10,001 ..................................... $10,001 or more, total .................................... $10,001 under $100,000................................ $100,000 under $500,000.............................. $500,000 under $1,000,000........................... $1,000,000 under $5,000,000........................ $5,000,000 or more........................................
2,3 2
Net gain (less loss), sales of noncapital assets 4 Number
(trusts only)
Income (less loss) from partnerships and S corporations
Number Amount of returns (10) (11) 4,020 2,538 1,482 896 294 97 128 67 (12) 176,583 5,042 171,541 20,087 26,970 13,320 42,346 68,819 3,554 *160 3,394 345 1,601 -301 2,994 -1,245 Amount
Amount
of returns
(8) 135 -135 *72 31 11 15 5 388 -388 *171 90 33 79 15
(9) 342 *51 292 173 76 16 16 11
Sources of gross unrelated business income (UBI) ¹-- Continued Rental Size of gross unrelated business income (UBI) Number of returns (13) Total............................................................... $1,000 under $10,001 ..................................... $10,001 or more, total .................................... $10,001 under $100,000................................ $100,000 under $500,000.............................. $500,000 under $1,000,000........................... $1,000,000 under $5,000,000........................ $5,000,000 or more........................................
2,3 2
Unrelated debt5
Investment income (less loss)
6
income
financed income
Number Amount (14) 229,816 5,892 223,924 49,748 56,715 31,456 44,388 41,617 of returns (15) 3,269 857 2,412 1,574 604 91 114 29 (16) 438,475 3,396 435,079 42,345 86,568 40,120 104,148 161,899 Amount
Number of returns (17) 5,928 2,674 3,254 1,918 1,045 174 100 17 (18) 457,759 9,012 448,746 29,897 62,469 33,109 127,793 195,478 Amount
4,303 1,289 3,014 2,099 684 108 95 28
Footnotes at end of table.
85
Unrelated Business Income Tax Returns, Tax Year 2001
Table 6.--Sources of Gross Unrelated Business Income (UBI), by Size of Gross UBI, Tax Year 2001 --Continued
[All figures are estimates based on samples--money amounts are in thousands of dollars]
Sources of gross unrelated business income (UBI) ¹--Continued
Income from Size of gross unrelated business income (UBI) Number of returns (19) Total....................................................... $1,000 under $10,001 ............................ $10,001 or more, total ........................... $10,001 under $100,000........................ $100,000 under $500,000...................... $500,000 under $1,000,000................... $1,000,000 under $5,000,000................ $5,000,000 or more................................
2,3 2
Exploited exempt activity
7
Advertising income Number
Other income (less loss) Number
controlled organizations
income, except advertising Number
Amount
of returns
Amount
of returns
Amount
of returns
Amount
(20) 212,181 *603 211,578 9,346 23,575 11,318 54,148 113,191
(21) 793 *176 617 316 161 57 64 19
(22) 134,117 *955 133,162 6,735 15,841 17,597 57,870 35,120
(23) 8,092 3,138 4,954 2,978 1,419 264 234 59
(24) 1,247,507 12,682 1,234,825 85,822 220,385 135,417 293,554 499,648
(25) 5,246 1,237 4,009 2,395 1,130 206 224 53
(26) 452,177 2,771 449,406 49,693 98,303 47,656 125,351 128,404
1,236 *203 1,033 592 282 49 74 37
*Estimate should be used with caution because of the small number of sample returns on which it is based. ¹ For definitions of the sources of gross unrelated business income, see the Explanation of Selected Terms section of this article. ² The gross unrelated business income (UBI) brackets of "$1,000 under $10,001" and "$10,001 under $100,000" reflect the different filing requirements for organizations with gross UBI of $10,000 or less (not required to report itemized expenses and deductions, or to complete return schedules) and all other Form 990-T filers (required to file a more detailed "complete" return). Organizations with gross UBI below $1,000 were not required to file Form 990-T. ³ All organizations were required to report each income item, as shown in columns 3 through 26. However, only organizations with gross UBI over $10,000 were required to report each deduction shown in columns 14 through 45, 48, 49, and 54 through 59 of Table 7. Income totals for these larger organizations with gross UBI over $10,000 are shown in order to facilitate comparison with Table 7.
4
Property other than capital assets generally included property of a business nature, in contrast to personal and investment property, which were capital assets. Income from real property and personal property leased with real property. Reported by Internal Revenue Code section 501(c)(7), (9), and (17) organizations only. Annuities, interest, rents, and royalties.
86
5 6 7
NOTE: Detail may not add to totals because of rounding.
86
Unrelated Business Income Tax Returns, Tax Year 2001
Table 7.--Types of Deductions, by Size of Gross Unrelated Business Income (UBI), Tax Year 2001
[All figures are estimates based on samples--money amounts are in thousands of dollars] All organizations Total number of returns Total deductions 1,2 Number of returns (2) 35,466 12,600 14,645 5,967 1,052 958 244 Organizations with gross unrelated business income (UBI) of $1,000 under $10,001 ³ Net operating loss deduction Number of Amount returns (6) 593 593 -----(7) 750 750 ------
Size of gross unrelated business income (UBI)
Amount (3) 7,882,907 58,731 552,226 1,344,677 750,735 1,927,386 3,249,152
Total deductions 2,4 Number of Amount returns (4) 12,600 12,600 -----(5) 58,731 58,731 ------
Specific deduction Number of Amount returns (8) 7,911 7,911 -----(9) 7,276 7,276 ------
(1) Total.......................................... $1,000 under $10,001 ³................. $10,001 under $100,000 ³............. $100,000 under $500,000............. $500,000 under $1,000,000.......... $1,000,000 under $5,000,000....... $5,000,000 or more....................... 35,540 12,653 14,659 5,971 1,054 960 244
Organizations with gross unrelated business income (UBI) of $10,001 or more ³ Deductions directly connected with UBI Total Size of gross unrelated business income (UBI) deductions 2,5 Number of returns Total.......................................... $1,000 under $10,001 ³................. $10,001 under $100,000 ³............. $100,000 under $500,000............. $500,000 under $1,000,000.......... $1,000,000 under $5,000,000....... $5,000,000 or more....................... (10) 21,427 -13,432 5,808 1,027 925 235 Number of returns (12) 21,427 -13,432 5,808 1,027 925 235 Total Number of returns (14) 1,553 -1,140 293 49 56 15 Allocable to rental income 6 Amount (13) 7,234,405 -515,929 1,271,997 696,558 1,778,278 2,971,642 Amount (15) 145,392 -30,301 34,934 15,985 31,550 32,622 Allocable to unrelated debt-financed income6 Number of returns (16) 2,317 -1,515 580 86 108 28 Amount (17) 421,624 -45,856 92,928 38,996 95,610 148,234 Allocable to investment income 6,7 Number of returns (18) 943 -382 400 103 53 5
Amount (11) 7,234,405 -515,929 1,271,997 696,558 1,778,278 2,971,642
Organizations with gross unrelated business income (UBI) of $10,001 or more ³--Continued Deductions directly connected with UBI--Continued Allocable to Size of gross unrelated business income (UBI) investment income 6,7 --Continued Amount (19) 25,192 -3,352 3,572 6,253 3,429 8,587 Allocable to income from controlled organizations 6 Number of returns (20) 440 -178 162 28 47 25 Allocable to exploited exempt activity income, except advertising 6 Number of returns (22) 550 -283 139 53 59 16 Number of returns (24) 4,476 -2,640 1,312 247 223 54 Direct advertising costs 6 Compensation of officers, directors, and trustees Number of returns (26) 1,762 -961 569 103 102 27
Amount (21) 145,445 -4,805 17,356 6,504 35,087 81,694
Amount (23) 124,954 -5,575 16,234 15,218 55,869 32,059
Amount (25) 915,440 -65,225 168,398 101,281 209,170 371,366
Amount (27) 38,620 -7,489 12,142 3,744 9,102 6,143
Total.......................................... $1,000 under $10,001 ³................. $10,001 under $100,000 ³............. $100,000 under $500,000............. $500,000 under $1,000,000.......... $1,000,000 under $5,000,000....... $5,000,000 or more.......................
Organizations with gross unrelated business income (UBI) of $10,001 or more ³--Continued Deductions directly connected with UBI--Continued Size of gross unrelated business income (UBI) Salaries and wages Number of returns (28) Total................................................................... $1,000 under $10,001 ³........................................... $10,001 under $100,000 ³....................................... $100,000 under $500,000....................................... $500,000 under $1,000,000.................................... $1,000,000 under $5,000,000................................. $5,000,000 or more................................................. Footnotes at end of table. 10,221 -5,455 3,449 614 557 146 Repairs and maintenance Number of returns (30) 6,859 -3,572 2,364 447 380 97 Bad debts Number of returns (32) 739 -156 308 107 115 53 Number of returns (34) 2,991 -1,546 1,037 192 157 59 Interest
Amount (29) 1,471,734 -113,578 333,788 172,730 375,230 476,408
Amount (31) 106,782 -15,786 29,986 13,049 23,430 24,531
Amount (33) 39,958 -141 1,459 3,194 7,784 27,381
Amount (35) 68,263 -11,768 17,669 7,584 19,089 12,152
87
Unrelated Business Income Tax Returns, Tax Year 2001
Table 7.--Types of Deductions, by Size of Gross Unrelated Business Income (UBI), Tax Year 2001 --Continued
[All figures are estimates based on samples--money amounts are in thousands of dollars] Organizations with gross unrelated business income (UBI) of $10,001 or more ³--Continued Deductions directly connected with UBI--Continued Size of gross unrelated business income (UBI) Taxes and licenses paid deduction Number of Amount returns (36) Total...................................................... $1,000 under $10,001 ³............................. $10,001 under $100,000 ³......................... $100,000 under $500,000.......................... $500,000 under $1,000,000....................... $1,000,000 under $5,000,000.................... $5,000,000 or more................................... 10,637 -6,282 3,261 571 410 113 (37) 165,455 -23,015 63,922 27,519 27,256 23,743 Depreciation Number of returns (38) 7,396 -3,891 2,481 460 441 123 Number of returns (40) 110 -78 23 Depletion Contributions to deferred compensation plans Number of Amount returns (42) 746 -251 333 86 60 15 (43) 9,208 -211 1,623 1,268 2,493 3,614
Amount (39) 209,574 -24,711 54,487 29,131 49,389 51,855
Amount (41) 4,383 -721 942 2,720
}
9
{
Organizations with gross unrelated business income (UBI) of $10,001 or more ³--Continued Deductions directly connected with UBI--Continued Deductions not Contributions Size of gross unrelated business income (UBI) to employee benefit programs Number of returns (44) Total...................................................... $1,000 under $10,001 ³............................. $10,001 under $100,000 ³......................... $100,000 under $500,000.......................... $500,000 under $1,000,000....................... $1,000,000 under $5,000,000.................... $5,000,000 or more................................... 4,966 -2,115 1,889 406 431 125 Number of returns (46) 3,240 -1,957 876 181 168 58 Net operating loss deduction Total Amount (45) 188,558 -7,756 28,742 18,160 59,391 74,510 Amount (47) 153,418 -17,612 28,138 16,281 44,266 47,121 Number of returns (48) 13,847 -7,980 4,198 776 694 199 Amount (49) 3,000,404 -138,029 365,679 219,541 728,196 1,548,959 Number of returns (50) 11,575 -7,491 2,958 544 460 122 Amount (51) 589,770 -36,296 72,679 54,177 149,108 277,510 Other deductions directly connected with UBI
88
Organizations with gross unrelated business income (UBI) of $10,001 or more ³--Continued Deductions not directly connected with UBI--Continued Size of gross unrelated business income (UBI) Specific deduction Number of returns (52) Total...................................................... $1,000 under $10,001 ³............................. $10,001 under $100,000 ³......................... $100,000 under $500,000.......................... $500,000 under $1,000,000....................... $1,000,000 under $5,000,000.................... $5,000,000 or more................................... 9,202 -6,112 2,294 412 307 77 Contributions Number of returns (54) 1,702 -1,024 464 85 96 34 Set-asides 7 Number of returns (56) 404 -*221 109 21 43 10 Excess exempt expenses Number of Amount returns (58) 2,330 -1,292 676 158 156 48 (59) 283,381 -20,916 45,438 30,338 77,819 108,871
Amount (53) 8,935 -5,909 2,236 408 305 77
Amount (55) 50,450 -3,927 5,801 12,072 6,879 21,772
Amount (57) 247,004 -*5,545 19,206 11,359 64,105 146,790
88
* Estimate should be used with caution because of the small number of sample returns on which it is based. ¹ Excludes cost of sales and services, which was subtracted from gross receipts from sales and services in computing gross profit from sales and services. Gross profit from sales and services was a component of gross unrelated business income (UBI). Cost of sales and services can include amounts attributable to depreciation, salaries and wages, and certain other deductible items. For all exempt organizations reporting gross UBI, cost of sales and services was $2.3 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ Organizations with gross UBI between $1,000 (the filing threshold) and $10,000 were required to report only totals for expenses and deductions (except for the specific deduction and net operating loss deduction, which all organizations reported separately). Organizations with gross UBI over $10,000 were required to report each expense and deduction item separately, as shown in columns 14 through 45, 48, 49, and 54 through 59. 4 Excludes $45.7 million of cost of sales and services reported by organizations with gross UBI of $10,000 or less. See footnote 1 for explanation. 5 Excludes $2.2 billion of cost of sales and services reported by organizations with gross UBI over $10,000. See footnote 1 for explanation. 6 This deduction was required to be reported as a lump-sum total only and may have included component deductions that were of the same type shown elsewhere in this table. For example, if deductions "allocable to rental income" included depreciation, then that amount of depreciation would not be included in the separately reported item, "depreciation." Therefore, the total amount shown for some of the separately reported deductions may be understated. 7 Reported by Internal Revenue Code section 501(c)(7), (9), and (17) organizations only. NOTE: Detail may not add to totals because of rounding.
SOURCE: IRS, Statistics of Income Winter 2004-2005 Bulletin, Publication 1136.