unrelated Business Income tax Returns, 2004
by Margaret Riley
t
he aggregate “unrelated business” income tax (UBIT) liability of nonprofit charitable and other types of tax-exempt organizations rose 66 percent between Tax Years 2003 and 2004. These organizations may engage in activities considered unrelated to their tax-exempt missions, but income produced from these activities is subject to Federal taxation.1 Of the 38,040 organizations that were required to file Forms 990-T, Exempt Organization Business Income Tax Returns, for Tax Year 2004 (Filing Years 2005 and 2006), 48 percent reported positive unrelated business taxable income (UBTI). The number of organizations filing Forms 990-T increased about 5 percent, with the number reporting positive UBTI increasing 16 percent. Tax-exempt organizations produced a total of $9.5 billion of gross unrelated business income (UBI) for 2004, nearly 13 percent more than the 2003 amount. After offsetting total gross UBI with $9.0 billion of total deductions, the resulting UBTI (less deficit) for 2004 was $0.5 billion. Positive UBTI amounted to $1.3 billion for 2004, a 65-percent increase over 2003, and the associated UBIT was $364.6 million. After adjusting UBIT with certain credits and other taxes, the total tax reported on Form 990-T was $367.7 million. Figure A contains these and other statistics for selected major financial data items reported on Forms 990-T for Tax Years 2003 and 2004. Total tax takes into account $364.6 million of unrelated business income tax, plus $3.9 million of alternative minimum tax, $4.3 million of “proxy tax” on certain nondeductible lobbying and political expenditures, and $0.1 million of “other” taxes, minus $5.2 million of tax credits.2 Tax credits included the foreign tax credit ($3.5 million), general business credit ($1.0 million), credit for prior-year minimum tax ($0.4 million), and “other” credits ($0.3 million).
Figure A
Selected Items from Forms 990-T, Exempt Organization Business Income Tax Returns, Tax Years 2003 and 2004
Item 2003 (1) Number of returns, total With gross unrelated business income of $10,000 or less [1] With gross unrelated business income over $10,000 [1] With unrelated business taxable income Without unrelated business taxable income [2] Gross unrelated business income Total deductions [3] Unrelated business taxable income (less deficit) Unrelated business taxable income Deficit Unrelated business income tax Total tax 36,064 12,681 23,383 15,580 20,484 8,436,027 8,412,822 23,204 780,149 756,944 219,949 220,916 2004 (2) 38,040 13,880 24,160 18,099 19,941 9,492,228 8,979,863 512,364 1,287,972 775,607 364,615 367,698 Percentage change (3) 5.5 9.5 3.3 16.2 -2.7 12.5 6.7 2,108.1 65.1 2.5 65.8 66.4
[Money amounts are in thousands of dollars]
[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 returns with equal amounts of gross unrelated business income and total deductions. [3] Includes both expenses and deductions reported on Form 990-T, lines 13(B), 29, 31, and 33. 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 (upon which the filing requirement is based). Total cost of sales and services was $2.5 billion for 2003 and $2.8 billion for 2004. 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 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 con-
Margaret Riley is a statistician with the Special Studies Special Projects Section. This article was prepared under the direction of Barry W. Johnson, Chief.
1
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The unrelated business income tax (UBIT) was imposed on the portion of a tax-exempt organization’s income produced from a trade or business that was conducted on a regular basis and was not substantially related to the organization’s tax-exempt mission. After reducing gross income by allowable deductions, any resulting positive net income was subject to UBIT. 2 See the definition of Proxy Tax in the Explanation of Selected Terms section of this article. The proxy tax of $4.3 million 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 into 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. According to IRS Business Returns Transactions File records, total proxy tax of $8.1 million was reported on Forms 990-T for Tax Year 2004.
Unrelated Business Income Tax Returns, 2004
Statistics of Income Bulletin | Winter 2008
ducted 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 not alter the definition.3 Any profits from an organization’s unrelated business activities are taxed at regular corporate or trust income tax rates.4 Certain activities are excluded from 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. 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. The various types of tax-exempt organizations subject to the unrelated business income tax provisions are described by IRC section in the Appendix to this article. 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).5 IRC section 501(c)(3) private foundations and certain charitable trusts file an information return on Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation. Form 990-T is required only for a tax year in which an organization has unrelated business income.
3 4
To report unrelated business income of $1,000 (the filing threshold) or more for Tax Year 2004, IRC section 220(e), 401(a), 408(e), 408A, and 530(a) trusts’ required reporting period was Calendar Year 2004, and the Form 990-T filing date was April 15, 2005. For all other organizations, the required reporting period was any accounting period beginning in Calendar Year 2004 (and, therefore, ending between December 2004 and November 2005, for full-year return filers). The associated required due dates for filing Tax Year 2004 Forms 990-T generally spanned May 2005 to April 2006, but extensions of time to file beyond this period were routinely granted to many organizations. Corresponding to the required filing dates, the Tax Year 2004 study sample was drawn from Forms 990-T processed by IRS throughout Calendar Years 2005 and 2006. (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 Tax Year 2004 return, the financial activities covered in this article span the period January 2004 through November 2005, although 58 percent of Form 990-T filers had Calendar Year 2004 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 report and pay proxy tax (only) or 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.
See the definition of Unrelated Business Activity in the Explanation of Selected Terms section of this article for more information. The corporate and trust tax-rate schedules for Tax Year 2004 are included in the definition of Unrelated Business Income Tax, found in the Explanation of Selected Terms section of this article. 5 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 their religious purposes. Internal Revenue Code section 4947(a)(1) “nonexempt charitable trusts” and section 4947(a)(2) “split-interest trusts” are required to report unrelated business income on Form 1041, Estate and Trust Income Tax Return, rather than Form 990-T. Published statistical reports on charitable and other nonprofit organizations, private foundations, and split-interest trusts are available from the Tax Stats pages of the IRS Web site at http://www.irs.gov/taxstats.
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Statistics of Income Bulletin | Winter 2008
Reported tax liability
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 litigation.
Key Factors Affecting unrelated Business taxable Income and tax
Unrelated business taxable income and tax declined each tax year from 1998 to 2002, a period when financial markets experienced high volatility.6 Over the 4-year period, UBTI and UBIT each decreased more than 60 percent. In the period between Tax Years 2002 and 2004, when stocks and other financial vehicles performed favorably, UBTI rose 99 percent, and UBIT rose 88 percent. Key factors affecting the amount of UBTI and UBIT reported each year on Form 990-T include the effect of market fluctuations on organizations with large amounts of unrelated business investment income; the organizational structure of an entity, as either a corporation or trust; each type of organization’s applicable tax rates; and the interrelationship between total amounts of gross UBI and allowable deductions. When analyzing changes in overall UBTI and UBIT reported for a given tax year, it is difficult to isolate the contribution of any one factor; rather, a blend of factors work together to affect change. In general, there is a clear distinction between organizations structured as corporations and trusts, with regard to the proportion of UBI attributable to four primary sources of investment income: net capital gains, combined income from partnerships and S corporations, unrelated debt-financed income, and investment income reported by sections 501(c)(7) recreational and social clubs, 501(c)(9) voluntary
6
employees’ beneficiary associations (VEBAs), and 501(c)(17) supplemental unemployment benefit trusts.7, 8 Based on data from Forms 990-T filed for Tax Years 1998 to 2004, presented in Figure B, the annual ratios of the total of these four investment items to total gross UBI ranged from 9 percent to 16 percent for tax-exempt corporations, compared to a range of 83 percent to 97 percent for tax-exempt trusts. Tax-exempt trusts historically have been subject to higher marginal tax rates than corporate exempt entities, resulting in higher average UBIT liability amounts for the trusts. Annual average UBIT liability amounts of trusts ranged from two times to six times larger than respective annual average UBIT liability amounts of corporations for tax years spanning 1998 to 2004. In addition, because these trusts hold high concentrations of investment assets that generate UBI, the annual aggregate UBTI and UBIT amounts that they report each year have been closely tied to fluctuations in equity and other financial markets.
Ratios of uBtI to Gross uBI for Selected types of Organizations
For 2004, 85 percent of all Form 990-T filers had a corporate structure; the remainder were formed as trusts. Certain groups of filers, classified by Internal Revenue Code section, are dominated by organizations with one type of the two structures. Three groups that are comprised mostly of trusts are IRC section 401(a) qualified pension, profit-sharing, and stock bonus plans; section 408(e) traditional Individual Retirement Accounts (IRAs); and section 501(c)(9) VEBAs, all of which typically report income from investment activities as a primary source of UBI. Organizations that rely mainly on investments for income usually have higher UBTI-togross-UBI (UBTI-to-GUBI) ratios than organizations with more diverse income sources. By the nature of their operations, heavily invested organizations are
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See Riley Margaret, “Unrelated Business Income Tax Returns, 2002: Financial Highlights and Special Analyses of Exempt-Organization Reporting Quality,” Statistics of Income Bulletin, Winter 2005-2006, Volume 25, Number 3. This report, along with statistical tables in Excel format, is available from the Tax Stats pages of the IRS Web site at http://www.irs.gov/taxstats. 7 See the Explanation of Terms section for definitions of these income sources. In addition to Federal taxation of unrelated business activities of a commercial nature, some organizations are also taxed on their investment incomes. All investment income of sections 501(c)(7), (9), and (17) organizations is considered unrelated business income and taxed accordingly. Other exempt organizations’ investment income ordinarily is not taxed, unless the investment was purchased with borrowed funds; i.e., debt-financed. 8 Rental income is not considered a type of investment income in this article because gross rents from real property were generally excluded in computing unrelated business taxable income (UBTI). The following were considered taxable as UBI: (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. See the definition of Rental Income in the Explanation of Selected Terms section of this article.
Unrelated Business Income Tax Returns, 2004
Statistics of Income Bulletin | Winter 2008
Figure B
Selected Unrelated Business Income Tax Data for Tax-Exempt Corporate and Trust Entities, Tax Years 1998-2004
[Money amounts are in thousands of dollars] Gross unrelated business income (UBI) (2) Total investment income [1] (3) Unrelated Unrelated business business taxable taxable income (less income (UBTI) deficit) (5) (6) Unrelated business income tax (UBIT) (8)
Type of organization, tax year
Number of returns
Total deductions [2]
Deficit
Total tax
(1) All organizations 1998 1999 2000 2001 2002 2003 2004 Tax-exempt corporations 1998 1999 2000 2001 2002 2003 2004 Tax-exempt trusts 1998 1999 2000 2001 2002 2003 2004 14,831 10,584 7,322 3,843 3,821 4,262 5,850 31,376 31,567 31,245 31,697 31,282 31,802 32,191 46,208 42,151 38,567 35,540 35,103 36,064 38,040
(4)
(7)
(9)
7,584,915 7,722,135 8,413,385 7,900,464 7,776,017 8,436,027 9,492,228
2,329,669 2,178,006 2,063,897 1,291,383 1,074,725 1,499,461 1,961,146
6,484,443 6,834,850 7,703,052 7,882,907 7,922,208 8,412,822 8,979,863
1,100,470 887,284 710,333 17,557 -146,191 23,204 512,364
1,669,753 1,484,921 1,427,441 791,963 647,246 780,149 1,287,972
569,283 597,637 717,109 774,406 793,438 756,944 775,607
505,896 423,065 405,826 226,032 194,074 219,949 364,615
464,288 421,746 402,904 221,532 192,747 220,916 367,698
6,202,258 6,260,902 7,219,027 7,202,952 7,276,187 7,579,444 8,489,586
1,006,564 768,062 940,870 689,406 661,777 724,255 1,061,041
5,896,558 6,200,866 7,203,007 7,486,872 7,602,148 7,763,313 8,393,253
305,699 60,035 16,021 -283,920 -325,961 -183,869 96,333
858,720 633,330 714,035 469,167 454,613 544,050 843,114
553,021 573,295 698,014 753,087 780,574 727,919 746,781
261,970 180,371 208,417 128,571 126,652 154,725 252,947
223,351 182,554 208,363 128,513 126,074 156,238 255,772
1,382,656 1,461,233 1,194,357 697,512 499,830 856,584 1,002,642
1,323,105 1,409,944 1,123,027 601,977 412,948 775,206 900,105
587,885 633,984 500,045 396,035 320,060 649,510 586,610
794,771 827,249 694,312 301,477 179,770 207,074 416,031
811,033 851,591 713,407 322,796 192,633 236,099 444,858
16,262 24,342 19,095 21,319 12,863 29,025 28,827
243,926 242,695 197,409 97,461 67,422 65,223 111,668
240,937 239,192 194,541 93,019 66,673 64,678 111,926
[1] Total investment income includes captial gain net income, combined partnership and S corporation income, unrelated debt-financed income, and investment income of Internal Revenue Code section 501(c)(7), (9), and (17) organizations. Other types of exempt organizations' investment income ordinarily is not taxed, unless the investment was purchased with borrowed funds; i.e., debt-financed. [2] Includes both expenses and deductions reported on Form 990-T, lines 13(B), 29, 31, and 33. 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 (upon which the filing requirement is based). NOTE: Column detail may not add to totals because of rounding.
relatively limited in the types and amount of deductions they can claim to offset income. They have lower operating costs because their investment portfolios are usually overseen by only one or two trust managers, and they do not incur the variety of expenses associated with organizations largely engaged in commercial enterprises. As shown in Figure C, sections 401(a), 408(e), and 501(c)(9) organizations had UBTI-to-GUBI ratios of 54 percent, 75 percent, and 38 percent, respectively, for 2004.
Exempt organizations that produce gross UBI from a broad mix of sources, therefore having the opportunity to offset income with a larger range of operational expenses and deductions, include sections 501(c)(3) nonprofit charitable organizations; 501(c)(5) labor, agricultural, and horticultural organizations; 501(c)(4) civic leagues, social welfare organizations, and local associations of employees; 501(c)(6) business leagues, chambers of commerce, and real estate boards; 501(c)(7) recreational and
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Statistics of Income Bulletin | Winter 2008
Figure C
Selected Sources of Gross Unrelated Business Income (UBI), by Selected Types of Organizations Tax-Exempt under the Internal Revenue Code, Tax Year 2004
[Money amounts are in thousands of dollars] Item All organizations (1) Number of returns Total gross unrelated business income (UBI) Gross profit (less loss) from sales and services Capital gain net income Income (less loss) from partnerships and S corporations Unrelated debt-financed income Investment income (less loss) of IRC section 501(c)(7), (9), and (17) orgaizations Exploited exempt activity income, except advertising Advertising income Unrelated business taxable income (UBTI) UBTI-to-GUBI Ratio [1] 38,040 9,492,228 4,854,512 360,046 572,093 475,467 Organization tax-exempt under Internal Revenue Code section: 401(a) (2) 339 167,160 6,798 58,395 75,363 5,441 408(e) (3) 4,272 45,507 3,485 10,993 25,985 2,028 501(c)(3) (4) 12,395 5,500,597 3,444,917 151,204 442,371 336,531 501(c)(4) (5) 1,712 625,307 297,883 0 5,627 6,924 501(c)(5) (6) 2,418 300,659 128,808 822 2,543 26,560 501(c)(6) (7) 6,230 1,074,449 218,161 2,798 8,490 35,703 501(c)(7) (8) 6,215 614,775 459,087 13,104 d N/A 501(c)(9) (9) 766 632,103 5,749 115,333 3,435 N/A 501(c)(19) (10) 1,608 156,286 112,064 1,257 0 6,663
553,539 176,462 1,417,249 1,287,972 13.6
N/A 0 0 89,726 53.7
N/A 0 0 34,013 74.7
N/A 82,949 603,677 636,103 11.6
N/A 5,960 141,303 20,620 3.3
N/A 6,161 56,989 28,212 9.4
N/A 76,872 576,008 129,657 12.1
56,717 N/A N/A 71,233 11.6
496,823 N/A N/A 237,332 37.5
N/A 1,705 20,407 7,157 4.6
d—Data deleted to avoid disclosure of information for specific taxpayers. However, data are included in the appropriate totals. N/A—Not applicable. [1] Ratio of unrelated business taxable income to gross unrelated business income. NOTE: Column detail may not add to totals because of rounding. See the Appendix to this article for descriptions of the types of tax-exempt organizations filing Form 990-T, by the Internal Revenue Code section describing them.
social clubs; and 501(c)(19) veterans’ organizations.9 The vast majority of these organizations are structured as corporations, and they are more likely to supplement their mission-related revenues with UBI produced from commercial and, to a lesser extent, investment activities. Within this grouping of organizations, UBTI-to-GUBI ratios ranged from 3 percent to 13 percent.
Relationship Among Gross uBI, total Deductions, and taxable Income
Another distinction between tax-exempt corporations and trusts is how the interrelationship between gross UBI and total deductions affects the amount of income that is ultimately taxable. Exempt corporate entities have a higher degree of flexibility in the allocation of administrative and operational expenses to their unrelated business activities, compared to ex9
empt trusts. Historically, corporate Form 990-T filers have accounted for large shares of both total gross UBI and total deductions. For each year in the 1998 to 2004 period presented in Figure B, total deductions reported by corporate Form 990-T filers were between 95 percent and 105 percent of their gross UBI. In comparison, tax-exempt trust filers’ total deductions ranged from 42 percent to 76 percent of their gross UBI during the same period. The synergy of annual rates of change in aggregate income and deductions also contributes, along with other factors, to overall increases or decreases in total UBTI reported each year. While the UBTI of organizations, as a whole, may rise or decline for a given year, the reverse can occur for particular subgroups of Form 990-T filers. Tax Year 2000 is a good example to illustrate this. Aggregate UBTI reported by all organizations declined by 4 percent be-
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The terms “nonprofit charitable organizations” and “charities,” used in this article, refer 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.
Unrelated Business Income Tax Returns, 2004
Statistics of Income Bulletin | Winter 2008
tween Tax Years 1999 and 2000. However, exempt corporations’ UBTI for 2000 rose by 13 percent, and exempt trusts’ UBTI declined by 16 percent. The two groups of 31,245 corporate entities and 7,322 trust entities each accounted for half of all UBTI reported for 2000. Aggregate gross UBI and total deductions of all Form 990-T filers increased by 9 percent and 13 percent, respectively, from 1999 to 2000. Corporate filers’ experienced a 15-percent growth in total gross UBI and a 16-percent increase in total deductions. In contrast, trust filers experienced declines in both total gross UBI and total deductions, of 18 percent and 21 percent, respectively. For 2000, the ratio of total deductions to gross UBI was virtually 100 percent for tax-exempt corporations and 42 percent for tax-exempt trusts. For organizations reporting positive amounts of UBTI, the ratio was 71 percent for corporate entities, compared to 17 percent for trusts.
Composition of uBI for Selected types of Organizations
Section 401(a) plans, section 408(e) traditional IRAs, and section 501(c)(9) VEBAs invest their assets to produce income for their beneficiaries. Capital gain net income, combined partnership and S corporation income, and debt-financed income collectively accounted for 83 percent and 86 percent, respectively, of the sections 401(a) and 408(e) trusts’ totals of gross UBI, as seen in Figure C. For section 501(c)(9) VEBAs, capital gain net income, combined partnership and S corporation income, and other types of investment income produced 97 percent of their total gross UBI. Other than capital gain net income and combined partnership and S corporation income, all investment income of VEBAs is reported as “investment income” on a special Form 990-T line. Any debt-financed income is included on this line and is not reported separately.10 Section 501(c)(3) nonprofit charitable organizations reported $5.5 billion of gross UBI for 2004, of which 74 percent was attributable to gross profit from sales and services and advertising income, two main commercial activities reported on Form 990-T. Another 17 percent was a combined total of capital
10
gain net income, partnership and S corporation income, and debt-financed income. While this investment income comprised a relatively small proportion of charities’ total UBI, the amount reported by charities accounted for 66 percent of the total of these three items reported on Form 990-T overall. In addition, for the charities, the total amount of these items rose 73 percent between 2003 and 2004. Section 501(c)(6) chambers of commerce, business leagues, and real estate boards grossed $1.1 billion of UBI for 2004, with gross profit from sales and services and advertising income accounting for 74 percent, and the total of capital gain net income, partnership and S corporation income (less loss), and debt-financed income accounting for only 4 percent. These organizations, many of which are business associations, also produced 7 percent of their gross UBI from “exploited exempt activities.” When an exempt organization exploits its name recognition or reputation of goodwill to produce income, such as selling endorsements for commercial products, the income is subject to unrelated business income taxation. Section 501(c)(6) organizations were responsible for 44 percent of the total of exploited exempt activity income.11
Changes in Gross uBI Sources, 2003-2004
A review of gross UBI sources presented in Figure D shows that income from investments made significant gains between 2003 and 2004. Capital gain net income increased by 142 percent, combined income (less loss) from partnerships and S corporations increased by 90 percent, and unrelated debt-financed income increased by 17 percent. The four types of income generated from investment activities–capital gain net income, income (less loss) from partnerships and S corporations, unrelated debt-financed income, and investment income (less loss) of section 501(c)(7), (9), and (17) organizations–together accounted for 21 percent of total gross UBI. The drop in aggregate investment income (less loss), which is reported only by section 501(c)(7), (9), and (17) organizations, is solely attributable to an organization that reported an atypically large amount of this type of income on its 2003 Form 990-T and
Section 501(c)(7), (9), and (17) organizations report capital gain net income and combined partnership and S corporation income separately, but include debt-financed income and other types of investment income on the “investment income” line specifically designated for these organizations. All other types of exempt organizations report capital gain net income, combined partnership and S corporation income, and debt-financed income separately on Form 990-T. 11 Another 47 percent of exploited exempt activity income was attributable to section 501(c)(3) charities.
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Figure D
Sources of Gross Unrelated Business Income (UBI), Tax Years 2003-2004
[Money amounts are in thousands of dollars] Item Tax year 2003 (1) Number of returns Total gross unrelated business income (UBI) Gross profit (less loss) from sales and services Capital gain net income Net capital loss (trusts only) Net gain (less loss), noncapital assets [1] Income (less loss) from partnerships and S corporations Rental income [2] Unrelated debt-financed income Investment income (less loss) [3] Income from controlled organizations [4] Exploited exempt activity income, except advertising Advertising income Other income (less loss) 36,064 8,436,027 4,501,523 148,657 612 13,073 301,520 274,300 407,164 642,120 206,355 151,591 1,280,994 509,342 Tax year 2004 (2) 38,040 9,492,228 4,854,512 360,046 339 11,980 572,093 265,970 475,467 553,539 217,923 176,462 1,417,249 587,324 Percentage change (3) 5.5 12.5 7.8 142.2 -44.6 -8.4 89.7 -3.0 16.8 -13.8 5.6 16.4 10.6 15.3
ing services, the second largest source of UBI overall, produced an additional 15 percent of the total.
[1] Property other than capital assets generally included property of a business nature, in contrast to personal and investment property which were capital assets. [2] Income from real property and personal property leased with real property. [3] Reported by Internal Revenue Code section 501(c)(7), (9), and (17) organizations only. [4] Annuities, interest, rents, and royalties. NOTE: Column detail may not add to totals because of rounding. For explanations of each income source, see the Explanations of Selected Terms section of this article.
a comparatively small amount on its 2004 form. To protect the organization from possible disclosure of identifiable tax information, adjusted totals cannot be provided in Figure D. However, if data from this outlier were excluded, the 2004 amount of aggregate investment income (less loss) would be significantly greater than the 2003 amount. While not considered an investment-related income source, gross profit (less loss) from sales and services is typically the largest source of income for tax-exempt organizations overall, and its profitability as an unrelated business activity can be favorably affected when financial markets and the economy are strong. Gross profit (less loss) from sales and services increased by 8 percent between 2003 and 2004, from $4.5 billion to $4.9 billion. For 2004, it accounted for just over half of total gross UBI. Advertis12 13
Figure E presents information on categories of section 501(c)(3) nonprofit charitable organizations, based on the National Taxonomy of Exempt Entities (NTEE), a system developed by the National Center for Charitable Statistics, with the collaboration of major nonprofit entities.12 This figure includes Tax Year 2004 estimates for all charities that filed Form 990/990-EZ “information” returns and the subset of these charities that additionally filed Form 990-T “tax” returns to report unrelated business income (UBI).13 The NTEE system classifies organizations by institutional purpose and major programs and activities. It is comprised of 26 major groups, which are then aggregated into 10 categories. The organizations were coded on the basis of information provided on Form 990. Estimates of Form 990-T data for section 501(c)(3) organizations shown in Figure E are lower than the estimates of these organizations’ overall Form 990-T filings shown in Figure C and Table 1 at the end of this article because some tax-exempt entities are required to file Form 990-T, but not Form 990/990-EZ. These entities include section 501(c)(3) private foundations, most organizations with receipts less than $25,000, most colleges and universities operated by State and local governments, most churches, and certain other types of religious organizations. The estimated 9,501 nonprofit charitable organizations with gross unrelated business income represent about 3 percent of the 276,199 section 501(c)(3) organizations that filed Forms 990/990-EZ for 2004. A large variety of organizations with diverse nonprofit purposes are included in the nine aggregated NTEE major categories (excluding “unknown, unclassified”) presented. While only 3 percent of charities, overall, produced UBI, the likelihood for engaging in unrelated business activities can vary significantly depending on the asset size of an organization. For example, a special Statistics of Income study using Tax Year 2003 Form 990-T data revealed
nonprofit Charitable Organizations Classified by the national taxonomy of exempt entities
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For information on the National Taxonomy of Exempt Entities classification system, see the National Center for Charitable Statistics Web site: www.ncc.urban.org. For a more extensive analysis of all nonprofit charitable organizations classified by NTEE category, see Arnsberger, Paul D., “Charities, Social Welfare, and Other TaxExempt Organizations, 2004,” Statistics of Income Bulletin, Fall 2007, Volume 27, Number 2, pp. 214-215. This report is available from the Tax Stats pages of the IRS Web site at http://www.irs.gov/taxstats.
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Figure e
Selected Items for Nonprofit Charitable Organizations Classified by NTEE Category, Tax Year 2004
[Money amounts are in thousands of dollars]
All nonprofit charitable organizations NTEE major category [1] Number of returns (1) Total Arts, culture, and humanities Education Environment, animals Health Human services International, foreign affairs Mutual, membership benefit Public, societal benefit Religion-related Unknown/unclassified
N/A—Not applicable.
Nonprofit charitable organizations with gross unrelated business income Gross unrelated business income Unrelated business taxable income [2] (8) 0.8 3.5 0.5 2.7 0.7 2.1 0.3 4.9 2.2 6.1 N/A 309,291 19,894 61,831 2,535 140,723 41,893 4,066 18 34,420 3,911 0 Total tax (9) 94,083 5,850 20,242 577 45,476 11,200 1,269 5 8,508 958 0
Total revenue (2) 1,152,989,149 25,515,073 220,139,219 11,134,496 655,062,871 157,653,242 17,077,324 2,849,553 55,169,990 8,376,063 11,317
Number of returns (3) 9,501 1,197 1,319 596 2,475 2,611 49 11 811 431 0
Total revenue (4) 545,225,473 9,120,379 121,471,445 4,294,098 368,054,814 18,907,536 4,003,467 305,309 17,240,869 1,827,557 0
As a Amount (5) 4,440,965 314,706 615,999 117,146 2,481,888 397,960 13,989 14,861 372,626 111,789 0 percentage of col. (2) (6) 0.4 1.2 0.3 1.1 0.4 0.3 0.1 0.5 0.7 1.3 N/A
As a percentage of col. (4) (7)
276,199 28,615 48,920 11,576 36,372 104,837 3,486 674 24,148 17,416 156
[1] The National Taxonomy of Exempt Entities (NTEE) is a classification system that uses 26 major field areas that are aggregated into the categories shown above. It was developed by the National Center for Charitable Statistics. The codes describe the purposes and activities of the organizations. [2] Includes data from returns with positive amounts of unrelated business taxable income only. NOTES: Data are from linked Forms 990, 990-EZ, and 990-T for nonprofit charitable organizations that are tax-exempt under Internal Revenue Code section 501(c)(3) and exclude private foundations, most organizations with receipts less than $25,000, most colleges and universities operated by State and local governments, as well as most churches, and certain other types of religious organizations. Detail may not add to totals because of rounding.
that only about 1 percent of charities with assets under $100,000 had income from unrelated business activities, compared with 39 percent of organizations with assets of $50,000,000 or more. For other groupings of charities, within four midsize asset classes, the percentages ranged from 2 to 13, increasing progressively as asset size increased.14 “Health” was by far the largest category in terms of total income reported, both on Forms 990/990-EZ and Forms 990-T. Organizations within this category accounted for 57 percent of the $1,153.0 billion of revenue reported by all nonprofit charities. They also accounted for 68 percent of the $545.2 billion of total revenue, 56 percent of the $4.4 billion of gross UBI, and 48 percent of the $94.1 million of total tax reported by Form 990/990-EZ filers that also filed Form 990-T. Of the 36,372 charitable organizations in the health category, about 7 percent engaged in unrelated business activities, a larger share than that associated with any other category shown in Figure E, and they filed 26 percent of the 9,501 Forms 990-T
14
on which UBI was reported. Form 990-T filers with mission-based health programs reported gross UBI that was less than 1 percent of their total revenues. The health category includes organizations that promote the wellness of individuals, the general treatment and prevention of disease or illness (including mental health and illness), and the medical rehabilitation of the physically disabled. Examples are hospitals; nursing or convalescent facilities; health care financing activities; substance abuse treatment services; organizations that study ethics or promote the practice of ethical behavior in medical care and research; health associations active in the prevention or treatment of diseases; and medical research. The major category of “education” ranked second in the amounts of gross UBI and total tax reported and third in the number of returns filed. The shares of total revenue, gross UBI, and total tax attributable to the 1,319 joint Form 990 and Form 990-T filers in this category were 22 percent, 14 percent, and 22 percent, respectively. Unrelated
See Riley, Margaret, “Unrelated Business Income Tax Returns, 2003: Financial Highlights and A Special Analysis of Nonprofit Charitable Organizations’ Revenue and Taxable Income,” Statistics of Income Bulletin, Winter 2006-2007, Volume 26, Number 3. This report is available from the Tax Stats pages of the IRS Web site at http://www.irs.gov/taxstats.
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business activities produced less than 1 percent of the $121.5 billion of total revenue reported by joint Forms 990/990-EZ and 990-T filers with educational purposes or programs. The education category includes higher education (excluding colleges and universities operated by State and local governments that are not required to file Form 990), elementary and secondary schools, correspondence schools, libraries, educational testing services, organizations providing opportunities for continuing education outside the framework of formal education, and student services and organizations. Organizations classified within the NTEE-defined category of “human services” accounted for the largest number of organizations with UBI shown in Figure E, 28 percent of the total, but they were responsible for only 4 percent of total revenue, 9 percent of gross UBI, and 12 percent of total tax reported by nonprofit charitable organizations that filed both Form 990/990-EZ and Form 990-T. Gross UBI represented 2 percent of their $18.9 billion of total revenue. The human services category was comprised of organizations in several classifications performing a variety of services focused on specific needs within the community: housing and shelter programs, including housing, construction, management, and services to assist in locating, acquiring, or sustaining housing; job training and placement services; public safety, disaster preparedness, and relief services, including activities related to mitigating the effects of disasters and providing relief to accident victims; amateur sports activities and recreation and sports programs provided by organizations for camps, parks, and playgrounds; crime prevention and legal services; and multipurpose organizations providing a broad range of social or human services to individuals and families.
Summary
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Between Tax Years 2003 and 2004, the “unrelated business” income tax (UBIT) liability of charitable and other types of tax-exempt organizations rose 66 percent. These organizations filed 38,040 Forms 990-T for Tax Year 2004 (Filing Years 2005 and 2006), about 5 percent more than the number filed for Tax Year 2003. They reported gross unrelated business income (UBI) of $9.5 billion and total deductions of $9.0 billion, resulting in unrelated business taxable income (less deficit) of $0.5 billion. Close to half of Form 990-T filers reported positive
unrelated business taxable income (UBTI), totaling $1.3 billion, an increase of 65 percent over the 2003 amount. After adjusting $364.6 million of UBIT with certain credits and other taxes, the total tax reported on Form 990-T was $367.7 million. Key factors affecting the amount of UBTI reported each year on Form 990-T include the effect of market fluctuations on organizations with large amounts of unrelated business investment income; the organizational structure of an entity, as either a corporation or trust; each type of organization’s applicable tax rates; and the interrelationship between total amounts of gross UBI and allowable deductions. In general, there is a clear distinction between organizations structured as corporations and trusts, with regard to the proportion of UBI attributable to investment income. The annual ratios of total investment income to total gross UBI reported on Forms 990-T from 1998 to 2004 ranged from 9 percent to 16 percent for tax-exempt corporations, and 83 percent to 97 percent for tax-exempt trusts. Tax-exempt trusts historically have been subject to higher marginal tax rates than corporate exempt entities, resulting in higher average UBIT liability amounts for the trusts. For each tax year from 1998 to 2004, the average UBIT liability of tax-exempt trusts was much larger than that of tax-exempt corporations, by twofold to sixfold. Additionally, tax-exempt corporate entities have a higher degree of flexibility in the allocation of administrative and operational expenses to their unrelated business activities compared to taxexempt trusts, which, by the nature of their operations, are relatively limited in the types and amount of deductions they can claim to offset income. For each year in the 1998 to 2003 period, aggregate total deductions reported by corporate Form 990-T filers were between 95 percent and 105 percent of their total gross UBI. Tax-exempt trust filers’ total aggregate deductions were between 42 percent and 76 percent of their total gross UBI. For Tax Year 2004, about 3 percent of the 276,199 IRC section 501(c)(3) nonprofit charitable organizations filing Forms 990/990-EZ also filed Forms 990-T. This article presents information on various categories of these filers, based on the National Taxonomy of Exempt Entities (NTEE), which classifies organizations by institutional purpose and major programs and activities. Organizations’ taxexempt missions related to health, education, and human services ranked first, second, and third, respectively, in terms of total revenue reported by all
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charitable organizations, and also in terms of total revenue, total gross UBI, UBTI, and total tax reported by charitable organizations that filed both Forms 990/990-EZ and 990-T. The proportion of total revenue produced from gross UBI by organizations within each of these three program categories was 2 percent or less.
Data Sources and limitations
The Tax Year 2004 Statistics of Income (SOI) Form 990-T study incorporated a two-stage sample design consisting of a stratified random sample and a special “integrated” sample. The stratified random sample was designed to represent the entire population of Form 990-T filers reporting unrelated business income. The integrated sample was designed to gather information on “related” (tax-exempt) and “unrelated” (taxable) income and expenses for section 501(c)(3) nonprofit charitable organizations that filed both Form 990 (or Form 990-EZ, the short-form version of this information return) and Form 990-T. This integrated sampling program ensured that the SOI 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 SOI 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 linked, by Employer Identification Number (EIN), to returns in the Forms 990/990-EZ sample. These linked returns, along with any randomly selected Forms 990-T that also had counterparts in the Forms 990/990-EZ sample, formed the “integrated” IRC section 501(c)(3) portion of the Form 990-T sample.15 Returns in the Form 990-T sample frame were classified into two-dimensional strata, based on the size of gross UBI in the Form 990-T population and the size of total assets in the section 501(c)(3) Form 990/990-EZ population of returns having EINs that matched Form 990-T EINs. As shown in
Figure F
Population and Sample Counts, and Designed and Achieved Sample Rates, by Sample Group, Tax Year 2004
Sample group number 1 2 Designed Sample group [1] Population count (1) Gross unrelated business income (UBI) $1,000 under $20,000 and total assets under $1,000,000, or Gross UBI $1,000 under $20,000 and no matching IRC section 501(c)(3) 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 $20,000,000, or Gross UBI $60,000 under $250,000 and total assets under $20,000,000, or Gross UBI $60,000 under $250,000 and no matching Form 990 or Form 990-EZ Gross UBI $1,000 under $250,000 and total assets $20,000,000 under $50,000,000, or Gross UBI $250,000 under $500,000 and total assets under $50,000,000, or Gross UBI $250,000 under $500,000 and no matching Form 990 or Form 990-EZ Gross UBI $500,000 or more, or total assets $50,000,000 or more All sample groups [2] 16,382 Sample count (2) 578 sample rate Achieved sample rate
Percentage (3) (4) 3.65 3.53
7,187
411
5.11
5.72
3
8,355
1,346
10.42
16.11
4
2,425 3,938 38,287
1,669 3,936 7,940
78.59 100.00 N/A
68.82 99.95 20.74
5
N/A—Not applicable. [1] 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 information returns in the Forms 990 and 990-EZ sample of IRC section 501(c)(3) filers. Gross unrelated business income is obtained from Form 990-T and total assets are obtained from Form 990/990EZ. [2] After excluding returns that were originally selected for the sample but later rejected, the sample size was 7,905, and the estimated population size was 38,040.
For additional information on the Forms 990 and 990-T integrated sample design, see Harte, James M. and Cecelia H. Hilgert (1993), “Enriching One Sample While Improving Another: Linking Differently Stratified Samples of Documents Filed by Exempt Organizations,” Turning Administrative Systems Into Information Systems, Statistics of Income.
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Figure F, the designed sampling rates ranged from a minimum of 3.65 percent (Form 990-T gross UBI of $1,000 under than $20,000, with either no Form 990/990-EZ EIN match or an EIN match to a 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 $500,000 or more, or Form 990-T with any amount of gross UBI and an EIN match to a section 501(c)(3) Form 990 with total assets of $50,000,000 or more). Other Forms 990-T were selected at designed rates ranging from 5.11 percent to 78.59 percent. The population from which the Form 990-T sample was drawn consisted of Tax Year 2004 Form 990-T records posted to the IRS Business Master File system during 2005 and 2006. Returns filed after Calendar Year 2006 were not included in the sample, unless a return was considered a large income-size case (over $500,000 or more of gross UBI). A sample of 7,940 returns was selected from a population of 38,287. After excluding returns that were selected for the sample but later rejected, the resulting sample size was 7,905 returns, and the estimated population size was 38,040. Rejected returns included those that had gross UBI below the $1,000 filing threshold; were filed for a part-year 2004 accounting period, and a full-year 2004 return was also filed; or were filed for a part-year accounting period that began in a year other than 2004. For example, a final return filed for the 6-month period of January 2005-June 2005 may have been initially selected for the 2004 sample based on the criterion of an accounting period that ended between December 2004 and November 2005, but it was later rejected because, in actuality, it was a Tax Year 2005 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 G shows CVs for selected financial data estimates derived from the Form
Figure G
Coefficients of Variation for Selected Form 990-T Items, by Size of Gross Unrelated Business Income, Tax Year 2004
Size of gross unrelated business income Gross Unrelated Number unrelated Total business Total of tax returns business deductions taxable income income Coefficient of variation (percentage) (1) Total $1,000 under $10,001 [1] $10,001 under $100,000 [1] $100,000 under $500,000 $500,000 or more 0.18 2.03 2.20 1.23 N/A (2) 0.17 3.40 1.88 1.01 N/A (3) 0.27 15.34 2.60 1.23 N/A (4) 0.75 6.74 5.75 3.60 N/A (5) 0.81 7.52 6.46 4.51 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.
990-T stratified random sample. 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
This section provides definitions for terms contained in the article and in Tables 1 through 7 at the end of the article. 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. 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 subscriber base of the periodical developed by producing and distributing the mission-related 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
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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 Internal Revenue Code sections 1245, 1250, 1252, 1254, and 1255) were considered taxable. 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 the donated income was directly connected with the carrying on of a trade or business. Cost of Sales and Services—Cost of sales and services 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 un-
derstated. 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). Deductions Directly Connected With Unrelated Business Income—These were deductions allowed in computing net income, if they otherwise 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
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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 one type of commercially exploited exempt activity could not be used to offset income from another type of unrelated business activity, unless both types commercially exploited the same 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 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. 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
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commercial advertising is identified as a trade or business even though the advertising is published in an exempt organization’s periodical that contains editorial material related to the organization’s exempt purpose. Income from Controlled Organizations—When an exempt organization controlled another organization, the entire amount of gross annuities, interest, rents, and royalties (termed “specified payments”) received from the controlled organization were included in the gross UBI of the controlling organization. They were included only 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 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 debtfinanced 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) from investment property 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 Debt-Financed 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.) Tax-exempt 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
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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 organization 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 described 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 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 use 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 con-
Unrelated Business Income Tax Returns, 2004
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sidered “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. (See, also, the explanation of Deductions Not Directly Connected With Unrelated Business Income.) 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. They excluded cost of sales and services, 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 Activity—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, extent, and nature of the activities involved must be considered in relation to the size, extent, and nature 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 operates 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 depicting 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. 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 Tax Year 2004, as shown in the following schedules. 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. Tax Rates for Corporations Amount of unrelated business taxable income is:
But not over— Of the amount over—
Over—
Tax is:
$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 0 35% 0 91
Unrelated Business Income Tax Returns, 2004
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Tax Rates for Trusts Amount of unrelated business taxable income is:
But not over— $1,950 4,600 7,000 9,550 -Of the amount over— $0 1,950 4,600 7,000 9,550
Over— $0 1,900 4,500 6,850 9,350
Tax is: 15% $292.50 + 25% 955 + 28% 1,627 + 33% 2,468.50 + 35%
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 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 debt-financed property, and the gain was treated as unrelated debt-financed income. Income from debt-financed 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.
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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 insurance 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
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
Activities of a nature implied by the description of the Religious, educational, charitable, scientific, or class of organization literary organizations; organizations that test for public safety. Also, organizations that prevent cruelty to children or animals, or foster national or international amateur sports competition Civic leagues, social welfare organizations, and local Promotion of community welfare and activities from associations of employees which net earnings are devoted to charitable, educational, or recreational purposes Labor, agricultural, and horticultural organizations 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
(4)
(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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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 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 Employee-funded pension trusts (created before June 25, 1959) Posts or organizations of past or present members of the armed forces Black Lung Benefit Trusts General nature of activities Activities of a mutually beneficial nature implied by the description of the class of organization
(13) (14)
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 Providing funds to satisfy coal mine operators' liability for disability or death due to black lung disease Providing funds to meet the liability of employers withdrawing from a multiple-employer pension fund Providing insurance and other benefits to veterans or their dependents Providing funds for employee retirement income
(15)
(16) (17) (18) (19)
(21)
(22) (23) (24) (25)
Withdrawal liability payment funds 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 Acquiring real property and remitting all income 35 shareholders or beneficiaries and only one class earned from such property to one or more exempt of stock or beneficial interest organizations; pension, profit-sharing, or stock bonus plans; or governmental units State-sponsored high-risk health insurance plans 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
(26)
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Appendix Types of Tax-Exempt Organizations Subject to the Unrelated Business Income Tax Provisions, by Internal Revenue Code Section—Continued
Code section 501(c)(27) Description of organization General nature of activities
State-sponsored workers' compensation reinsurance Pooled employers' funds providing reimbursements plans to employees for losses arising under workers' compensation acts; also, State-created, -operated, and -controlled organizations providing workers' compensation insurance to employers Qualified State Tuition Plans 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
529(a)
530(a)
Coverdell Education Savings Accounts
NOTES: 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 for tax years beginning after June 30, 1992.
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96
Number of returns Number of returns Amount (4) 8,979,863 0 78,509 11,564 * 891 127,229 5,388,374 632,287 300,239 1,005,847 584,715 64,575 414,059 26,823 0 5,257 571 494 293 0 30,060 -212 218,044 -526 0 4,256 68,602 2,173 3,766 324 354 90 0 9,708 1,075 1,840 112,223 -6,980 420 4,793 463 775 307 -18,161 79 6,655 636,103 20,620 28,212 129,657 71,233 5,044 237,332 1,822 0 79 4,801 450 776 2,260 3,666 325 356 90 0 30,122 0 314 4,220 * 49 512,364 0 88,652 33,943 * 3,712 18,099 0 288 4,174 * 49 1,287,972 0 89,726 34,013 * 3,712 18,022 0 288 4,093 * 31 (5) (6) (7) (8) (9) (10) 367,698 0 25,092 8,802 * 920 2,102 191,291 7,051 7,768 40,854 16,996 1,164 59,348 363 0 Amount Amount Amount (3) 37,883 0 317 4,224 * 65 348 12,384 1,706 2,418 6,173 6,207 775 760 375 0 Number of returns Number of returns Number of returns Gross unrelated business income (UBI) Total deductions [1,2] Total tax [5] Unrelated Unrelated business Unrelated business taxable business taxable income income [4] taxable income (less deficit) (less deficit) [3] [3]—continued (1) 38,040 0 339 4,272 * 66 348 12,395 1,712 2,418 6,230 6,215 775 766 375 0 614,775 64,363 632,103 26,297 0 1,074,449 5,500,597 625,307 300,659 109,068 9,492,228 0 167,160 45,507 * 4,603 (2)
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 Type of Tax-Exempt Organization, Tax Year 2004
[All figures are estimates based on samples—money amounts are in thousands of dollars]
Type of tax-exempt organization, as defined by Internal Revenue Code section
All organizations
Statistics of Income Bulletin | Winter 2008
220(e) Archer Medical Savings Accounts 401(a) Qualified pension, profit-sharing, or stock bonus plans 408(e) Traditional Individual Retirement Accounts 408(A) Roth Individual Retirement Accounts
501(c)(2) Title-holding corporations for exempt organizations [6] 501(c)(3) Religious, educational, charitable, scientific, or literary organizations 501(c)(4) Civic leagues and social welfare organizations 501(c)(5) Labor, agricultural, and horticultural organizations 501(c)(6) Business leagues, chambers of commerce, and real estate boards
Unrelated Business Income Tax Returns, 2004
501(c)(7) Social and recreational clubs 501(c)(8) Fraternal beneficiary societies and associations 501(c)(9) Voluntary employees' beneficiary associations 501(c)(10) Domestic fraternal beneficiary societies and associations 501(c)(11) Teachers' retirement fund associations
501(c)(12) Benevolent life insurance associations and certain mutual companies 501(c)(13) Cemetery companies 501(c)(14) State-chartered credit unions 501(c)(15) Mutual insurance companies 501(c)(16) Corporations organized to finance crop operations 270 * 51 161 d 0 0 *7 1,608 0 0 0 * 2,103 156,286 0 0 0 *7 1,608 0 0 0 * 1,934 160,349 0 0 85,710 * 4,383 72,636 d 0 270 * 51 161 d 0 85,227 * 3,374 88,393 d 0 230 * 45 151 d 0 0 *6 1,273 0 0
483 * 1,010 -15,757 d 0 0 * 169 -4,063 0 0
148 * 37 111 d 0 0 *6 437 0 0
9,670 * 1,066 4,982 d 0 0 * 169 7,157 0 0
148 * 37 111 d 0 0 *6 472 0 0
2,679 * 241 1,460 d 0 0 * 54 1,291 0 0
501(c)(17) Supplemental unemployment benefit trusts 501(c)(18) Employee-funded pension trusts 501(c)(19) War veterans' posts or organizations 501(c)(21) Black Lung Benefit Trusts [7] 501(c)(22) Withdrawal liability payment funds
Footnotes at end of table.
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 Type of Tax-Exempt Organization, Tax Year 2004—Continued
[All figures are estimates based on samples—money amounts are in thousands of dollars]
Type of tax-exempt organization, as defined by Internal Revenue Code section Number of returns Amount (4) 0 0 d 0 d d 0 d 0 d 0 d 0 d 0 d 0 0 0 d 0 d 0 0 d 0 d 0 0 d 0 d 0 0 d 0 d 0 0 d 0 d 0 0 d 0 d d 0 (5) (6) (7) (8) (9) Amount Amount (3) 0 0 d 0 d d 0 (10) 0 0 d 0 d d 0 Number of returns Number of returns Number of returns Amount
Number of returns
Gross unrelated business income (UBI)
Total deductions [1,2] Total tax [5]
Unrelated Unrelated business Unrelated business taxable business taxable income income [4] taxable income (less deficit) (less deficit) [3] [3]—continued
(1) 0 0 d 0 d d 0
(2)
501(c)(23) Veterans' associations founded before 1880 501(c)(24) Trusts described in section 4049 of ERISA 501(c)(25) Title-holding companies with no more than 35 shareholders 501(c)(26) High-risk health insurance plans 501(c)(27) Workers' compensation reinsurance plans
529(a) Qualified State Tuition Plans 530(a) Coverdell Education Savings Accounts
*Estimate should be used with caution because of the small number of sample returns on which it is based. d—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 $2.8 billion.
[2] Includes both expenses and deductions reported on Form 990-T, lines 13(B), 29, 31, and 33. [3] Excludes data from 7,918 returns with equal amounts of gross UBI and total deductions. [4] Includes data from returns with positive amounts of unrelated business taxable income only. [5] 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, but 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 $4.3 million.
[6] 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.
[7] 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.
NOTE: Detail may not add to totals because of rounding. See the Appendix to this article for descriptions of the types of tax-exempt organizations filing Form 990-T, by the Internal Revenue Code section describing them.
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[All figures are estimates based on samples—money amounts are in thousands of dollars] Gross unrelated business income (UBI) (2) 9,492,228 57,462 506,918 1,757,769 874,200 2,356,084 3,939,796 Total deductions [1,2]
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 2004
Unrelated business taxable income (less deficit) [3] Number of returns (5) 30,122 11,359 10,418 6,261 959 887 238 Amount (6) 512,364 -4,963 4,287 27,431 17,390 117,374 350,845 Unrelated business taxable income [4] Number of returns (7) 18,099 8,521 5,239 3,270 522 426 121 Total tax [5]
Size of gross unrelated business income (UBI)
Number of returns
Number of returns (3) 37,883 13,795 13,232 8,158 1,250 1,148 300
Amount (4) 8,979,863 62,425 502,631 1,730,337 856,810 2,238,709 3,588,950
Amount (8) 1,287,972 18,029 91,964 223,424 100,930 319,984 533,640
Number of returns (9) 18,022 8,463 5,189 3,257 523 449 140
Amount (10) 367,698 3,047 16,593 60,594 30,160 97,227 160,078
(1) Total $1,000 under $10,001 [6] $10,001 under $100,000 [6] $100,000 under $500,000 $500,000 under $1,000,000 $1,000,000 under $5,000,000 $5,000,000 or more 38,040 13,880 13,283 8,173 1,254 1,150 300
[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 $2.8 billion. [2] Includes both expenses and deductions reported on Form 990-T, lines 13(B), 29, 31, and 33. [3] Excludes data from 7,918 returns with equal amounts of gross UBI and total deductions. [4] Includes data from returns with positive amounts of unrelated business taxable income only. [5] 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 $4.3 million. [6] 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.
[All figures are estimates based on samplesmoney amounts are in thousands of dollars] Gross unrelated business income (UBI) (2) 9,492,228 3,585,960 2,184,388 54,487 293,164 826,326 777,180 372,313 1,398,410
Table 3. Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Unrelated Business Taxable Income (Less Deficit), and Total Tax, by Size of Unrelated Business Taxable Income or Deficit, Tax Year 2004
Total deductions [1,2] Unrelated business taxable income (less deficit) Number of returns (5) 30,122 12,023 0 3,956 7,623 5,009 1,144 158 209 Total tax [3]
Size of unrelated business taxable income or deficit
Number of returns
Number of returns (3) 37,883 12,023 7,918 3,956 7,538 4,958 1,129 154 207
Amount (4) 8,979,863 4,361,567 2,184,388 52,645 263,739 664,437 542,474 260,058 650,556
Amount (6) 512,364 -775,607 0 1,842 29,425 161,889 234,707 112,255 747,854
Number of returns (7) 18,022 69 161 3,891 7,514 4,885 1,137 158 207
Amount (8) 367,698 2,639 1,624 273 4,737 29,087 73,580 36,027 219,731
(1) Total Deficit Zero [4] $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 38,040 12,023 7,918 3,956 7,623 5,009 1,144 158 209
[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 $2.8 billion. [2] Includes both expenses and deductions reported on Form 990-T, lines 13(B), 29, 31, and 33. [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 $4.3 million. [4] The Zero category includes returns with equal amounts of gross unrelated business income and total deductions.
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NOTE: Detail may not add to totals because of rounding.
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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 2004
[All figures are estimates based on samples—money amounts are in thousands of dollars] Gross unrelated business income (UBI) (2) 3,721,880 31,172 198,915 715,402 356,833 859,333 1,560,225 3,067,437 18,558 178,419 639,785 313,015 690,847 1,226,813 654,443 12,613 20,496 75,617 43,818 168,486 333,413 Total deductions [1,2] Unrelated business taxable income (5) 1,287,972 18,029 91,964 223,424 100,930 319,984 533,640 843,114 10,067 75,361 164,020 65,932 192,978 334,755 444,858 7,962 16,604 59,404 34,998 127,005 198,885 Total tax [3]
Type of entity and size of gross unrelated business income (UBI)
Number of returns
Number of returns (3) 17,942 8,436 5,189 3,254 518 424 121 12,851 4,356 4,681 2,913 458 340 103 5,091 4,080 508 341 60 84 18
Amount (4) 2,433,908 13,142 106,950 491,978 255,903 539,349 1,026,585 2,224,323 8,491 103,058 475,765 247,082 497,868 892,057 209,585 4,651 3,892 16,212 8,821 41,481 134,528
Number of returns (6) 17,792 8,407 5,145 3,190 509 422 119 12,739 4,355 4,643 2,855 446 336 103 5,053 4,052 502 335 63 86 16
Amount (7) 363,436 2,991 16,263 60,282 30,083 96,742 157,074 254,197 1,518 11,961 42,931 19,942 63,993 113,852 109,239 1,474 4,302 17,350 10,141 32,749 43,223
(1) ALL ENTITIES Total $1,000 under $10,001 [4] $10,001 under $100,000 [4] $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 [4] $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 [4] $100,000 under $500,000 $500,000 under $1,000,000 $1,000,000 under $5,000,000 $5,000,000 or more 5,161 4,109 543 342 63 86 18 12,938 4,413 4,697 2,927 459 340 103 18,099 8,521 5,239 3,270 522 426 121
[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 $847.2 million, 71 percent of which was attributable to tax-exempt corporations. [2] Includes both expenses and deductions reported on Form 990-T, lines 13(B), 29, 31, and 33. [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 posititve unrelated business taxable income, total proxy tax was $3.6 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.
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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 2004
[All figures are estimates based on samples—money amounts are in thousands of dollars] Gross unrelated business income (UBI) (2) 9,492,228 64,062 26,823 36,349 133,012 82,229 30,739 734,810 6,508 220,833 1,809,948 208,745 664,790 210,050 726,362 1,089,062 68,786 1,020,275 1,913,396 41,137 381,278 44,117 1,271,260 744,440 616,011 152,414 88,564 * 5,239 186 230 62 41 217 68 1,308 65 753 10,602 964 3,318 391 5,928 6,240 473 5,767 7,985 84 782 62 977 4,562 2,888 614 250 * 63 Total deductions [1,2] Number of returns (3) 37,883 185 224 60 41 217 68 1,308 65 752 10,464 935 3,305 389 5,834 6,233 473 5,760 7,985 84 782 62 977 4,562 2,887 614 250 * 63 Unrelated business taxable income (less deficit) [3] Number of returns (5) 30,122 116 199 60 34 175 60 1,109 * 34 541 9,310 890 2,786 319 5,315 5,324 420 4,904 5,195 81 631 47 778 3,281 2,389 506 219 * 35 Amount (6) 512,364 34,709 16,816 10,525 3,976 25,471 24,696 -34,888 * -228 896 478,701 97,529 238,276 18,845 124,051 107,178 2,205 104,973 7,521 14,473 -23,344 -171 -64,585 -41,400 -48,910 -5,505 4,645 * 1,788 Unrelated business taxable income [4] Number of returns (7) 18,099 65 199 48 * 24 151 * 41 394 d 192 8,142 794 2,487 246 4,614 2,870 169 2,702 2,423 78 222 d 342 1,524 918 270 138 d Total tax [5] Number of returns (9) 18,022 66 199 48 * 24 152 * 41 405 d 194 7,988 792 2,453 250 4,493 2,876 164 2,712 2,503 81 226 d 368 1,499 912 272 139 d
Primary unrelated business activity or industrial grouping
Number of returns
Amount (4) 8,979,863 29,353 10,007 25,824 129,036 56,758 6,043 769,698 6,736 219,937 1,331,246 111,217 426,514 191,205 602,310 981,884 66,582 915,302 1,905,874 26,664 404,622 44,288 1,335,845 785,839 664,921 157,919 83,919 * 3,451
Amount (8) 1,287,972 36,463 16,816 11,129 * 4,753 30,151 * 25,434 28,247 d 24,378 580,579 107,894 258,922 43,371 170,392 198,881 5,902 192,980 131,362 15,910 23,698 d 73,889 38,036 29,544 4,544 7,733 d
Amount (10) 367,698 12,469 5,097 3,523 * 1,490 6,642 * 8,437 7,916 d 7,896 161,042 32,963 63,861 12,555 51,663 53,810 1,487 52,324 40,915 5,202 7,285 d 24,283 8,615 7,738 1,058 2,154 d
(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 [6] Investment activities of Code section 501(c)(7), (9), and (17) organizations [6,7] Passive income activities with controlled organizations [6] 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 38,040
*Estimate should be used with caution because of the small number of sample returns on which it is based. d—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 $2.8 billion. [2] Includes both expenses and deductions reported on Form 990-T, lines 13(B), 29, 31, and 33. [3] Excludes data from 7,918 returns with equal amounts of gross UBI and total deductions. [4] Includes data from returns with positive amounts of unrelated business taxable income only. [5] 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 $4.3 million. [6] 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. [7] 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.
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[All figures are estimates based on samples—money amounts are in thousands of dollars] Gross unrelated business income (UBI) Number of returns (1) Total $1,000 under $10,001 [2] $10,001 or more, total [2] $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 38,040 13,880 24,160 13,283 8,173 1,254 1,150 300 Net capital loss (trusts only) Number of returns (7) Total $1,000 under $10,001 [2] $10,001 or more, total [2] $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 115 0 115 * 52 32 9 ** 22 ** Amount (8) 339 0 339 * 142 93 38 ** 66 **
Table 6. Sources of Gross Unrelated Business Income (UBI), by Size of Gross UBI, Tax Year 2004
Sources of gross unrelated business income (UBI) [1] Gross profit (less loss) from sales and services Number of returns (3) 15,889 2,756 13,133 6,412 4,950 831 730 211 57,462 9,434,766 506,918 1,757,769 874,200 2,356,084 3,939,796 Amount (4) 4,854,512 9,576 4,844,936 221,936 918,683 465,679 1,247,017 1,991,621 Capital gain net income Number of returns (5) 1,642 804 838 347 289 64 98 39 Amount (6) 360,046 2,146 357,900 7,223 39,770 22,247 93,560 195,099
Size of gross unrelated business income (UBI)
Amount (2) 9,492,228
Sources of gross unrelated business income (UBI) [1]—continued Size of gross unrelated business income (UBI) Net gain (less loss), sales of noncapital assets [3] Number of returns (9) 311 * 97 214 79 64 25 ** 45 ** Amount (10) 11,980 * 123 11,857 1,282 3,280 2,505 ** 4,791 ** Income (less loss) from partnerships and S corporations Number of returns (11) 6,239 4,239 2,000 877 638 157 218 110 Amount (12) 572,093 10,987 561,107 22,523 82,942 41,445 152,433 261,763
Sources of gross unrelated business income (UBI) [1]—continued Size of gross unrelated business income (UBI) Rental income [4] Number of returns (13) Total $1,000 under $10,001 [2] $10,001 or more, total [2] $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
Footnotes at end of table.
Unrelated debtfinanced income Number of returns (15) 3,120 855 2,266 1,242 744 110 128 42 6,474 259,497 51,295 80,836 38,485 52,485 36,395 Amount (16) 475,467 4,200 471,267 37,340 105,481 47,857 120,456 160,133
Investment income (less loss) [5] Number of returns (17) 5,531 2,522 3,008 1,442 1,235 202 111 18 Amount (18) 553,539 6,810 546,730 20,355 57,489 30,267 106,402 332,217
Amount (14)
4,313 1,135 3,178 2,078 831 143 92 34
265,970
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Table 6. Sources of Gross Unrelated Business Income (UBI), by Size of Gross UBI, Tax Year 2004 —Continued
[All figures are estimates based on samples—money amounts are in thousands of dollars] Sources of gross unrelated business income (UBI) [1]—continued Size of gross unrelated business income (UBI) Income from controlled organizations [6] Number of returns (19) Total $1,000 under $10,001 [2] $10,001 or more, total [2] $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 1,005 219 786 294 324 54 75 39 Amount (20) 217,923 558 217,365 7,226 28,364 13,144 45,480 123,152 Exploited exempt activity income, except advertising Number of returns (21) 895 153 743 286 282 67 86 22 Amount (22) 176,462 804 175,658 7,162 29,657 20,103 56,387 62,349 Advertising income Number of returns (23) 8,207 2,675 5,531 2,896 1,980 293 286 76 Other income (less loss) Number of returns (25) 5,351 1,284 4,066 1,969 1,591 218 223 65 Amount (26) 587,324 3,363 583,960 46,831 124,405 47,512 138,250 226,962
Amount (24) 1,417,249 12,422 1,404,827 83,885 286,955 144,995 341,411 547,582
* Estimate should be used with caution because of the small number of sample returns on which it is based. **Data in adjacent size classes are combined to avoid disclosure of information about specific taxpayers. [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] Property other than capital assets generally included property of a business nature, in contrast to personal property and investment property, which were capital assets. [4] Income from real property and personal property leased with real property. [5] Reported by Internal Revenue Code section 501(c)(7) social and recreational clubs, section 501(c)(9) voluntary employees' beneficiary associations, and section 501(c)(17) supplemental unemployment benefit trusts only. [6] Annuities, interest, rents, and royalties. NOTE: Detail may not add to totals because of rounding.
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[All figures are estimates based on samples —money amounts are in thousands of dollars]
Table 7. Unrelated Business Income Tax Returns: Types of Deductions by Size of Gross Unrelated Business Income (UBI), Tax Year 2004
All organizations Size of gross unrelated business income (UBI) Total deductions [1, 2] Total number of returns Number of returns (2) 37,883 13,795 13,232 8,158 1,250 1,148 300 Organizations with gross unrelated business income (UBI) of $1,000 under $10,001 [3] Total deductions [2, 4] Number of returns (4) 13,795 13,795 N/A N/A N/A N/A N/A Amount (5) 62,425 62,425 N/A N/A N/A N/A N/A Net operating loss deduction Number of returns (6) 931 931 N/A N/A N/A N/A N/A Amount (7) 2,253 2,253 N/A N/A N/A N/A N/A Specific deduction Number of returns (8) 9,435 9,435 N/A N/A N/A N/A N/A Amount (9) 8,979 8,979 N/A N/A N/A N/A N/A
Amount (3) 8,979,863 62,425 502,631 1,730,337 856,810 2,238,709 3,588,950
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
(1) 38,040 13,880 13,283 8,173 1,254 1,150 300
Organizations with gross unrelated business income (UBI) of $10,001 or more [3]—continued Deductions directly connected with UBI Size of gross unrelated business income (UBI) Total 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) 24,088 N/A 13,232 8,158 1,250 1,148 300 Total Number of returns (12) 22,772 N/A 12,294 7,863 1,211 1,115 288 Allocable to rental income [6] Amount (13) 8,232,857 N/A 473,760 1,625,248 800,957 2,096,328 3,236,564 Number of returns (14) 1,582 N/A 976 443 75 63 25 Amount (15) 165,435 N/A 27,053 53,428 24,933 35,842 24,178 Allocable to unrelated debtfinanced income [6] Number of returns (16) 2,174 N/A 1,194 714 106 122 38 Amount (17) 456,902 N/A 40,469 107,623 46,546 127,725 134,539 Allocable to investment income [6,7] Number of returns (18) 1,097 N/A 376 534 115 66 5
Amount (11) 8,917,439 N/A 502,631 1,730,337 856,810 2,238,709 3,588,950
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) Allocable to investment Allocable to income from income [6, controlled organizations [6] 7]—continued Amount (19) 94,449 N/A 4,585 5,404 1,808 6,339 76,313 Number of returns (20) 518 N/A 221 181 39 49 29 Amount (21) 163,538 N/A 6,719 15,879 8,942 27,742 104,256 Allocable to exploited exempt activity income, except advertising [6] Number of returns (22) 685 N/A 277 247 60 81 20 Amount (23) 159,345 N/A 6,328 24,483 18,180 52,182 58,171 Direct advertising costs [6] Number of returns (24) 5,149 N/A 2,739 1,794 275 272 69 Compensation of officers, directors, and trustees Number of returns (26) 1,980 N/A 849 861 115 117 38
Amount (25) 987,739 N/A 64,731 204,284 103,624 241,637 373,463
Amount (27) 58,940 N/A 7,258 21,443 5,856 10,176 14,207
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 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.
Repairs and maintenance Number of returns (30) 7,926 N/A 3,609 3,256 504 434 123
Bad debts Number of returns (32) 940 N/A 184 437 117 141 61
Interest Number of returns (34) 3,225 N/A 1,291 1,460 240 168 66
Amount (29) 1,659,256 N/A 94,953 419,821 189,973 443,651 510,857
Amount (31) 119,687 N/A 12,089 37,962 16,420 22,761 30,455
Amount (33) 46,660 N/A 591 3,535 1,656 13,377 27,500
Amount (35) 68,169 N/A 7,512 19,056 8,941 14,467 18,193
(28) 10,807 N/A 4,720 4,528 723 658 179
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[All figures are estimates based on samples —money amounts are in thousands of dollars]
Table 7. Unrelated Business Income Tax Returns: Types of Deductions by Size of Gross Unrelated Business Income (UBI), Tax Year 2004—Continued
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 returns (36) Amount (37) 208,875 N/A 21,055 82,969 29,781 37,214 37,856 Depreciation Number of returns (38) 8,197 N/A 3,697 3,345 516 487 153 Amount (39) 248,450 N/A 19,489 70,981 33,201 55,930 68,848 Depletion Number of returns (40) 132 N/A * 96 * 27 *4 ** 5 ** Amount (41) 3,468 N/A * 602 * 831 * 288 ** 1,747 ** Contributions to deferred compensation plans Number of returns (42) 1,193 N/A 420 533 126 ** 114 ** Amount (43) 13,573 N/A 416 2,766 1,708 ** 8,683 **
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
11,475 N/A 5,639 4,513 632 537 154
Size of gross unrelated business income (UBI)
Organizations with gross unrelated business income (UBI) of $10,001 or more [3]—continued Deductions directly connected with UBI—continued Deductions not directly Contributions to employee connected with UBI, total Other deductions Net operating loss deduction benefit programs Number of returns (44) 5,609 N/A 1,920 2,552 490 495 152 Amount (45) 239,713 N/A 6,929 39,619 22,534 71,317 99,314 Number of returns (46) 3,699 N/A 1,693 1,443 231 260 72 Amount (47) 309,400 N/A 14,424 54,591 28,968 95,129 116,289 Number of returns (48) 14,883 N/A 7,282 5,593 908 855 245 Amount (49) 3,229,259 N/A 138,557 460,572 257,598 836,009 1,536,522 Number of returns (50) 12,651 N/A 6,783 4,421 694 578 175 Amount (51) 684,581 N/A 28,871 105,089 55,854 142,381 352,387
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 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 10,322 N/A 5,751 3,489 538 422 122 Amount (53) 9,893 N/A 5,475 3,353 526 417 122 Charitable contributions Number of returns (54) 2,178 N/A 1,012 833 136 129 69 Amount (55) 61,208 N/A 3,212 11,307 5,014 10,634 31,041 Set-asides [7] Number of returns (56) 326 N/A * 126 131 26 34 9 Amount (57) 288,520 N/A * 2,701 23,173 14,075 48,006 200,564 Excess exempt-activity expenses [8] Number of returns (58) 2,557 N/A 1,178 969 170 187 53 Amount (59) 324,960 N/A 17,483 67,255 36,239 83,324 120,659
* Estimate should be used with caution because of the small number of sample returns on which it is based. **Data in adjacent size classes are combined to avoid disclosure of information about specific taxpayers. N/A—Not applicable. [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 $2.8 billion. [2] Includes both expenses and deductions reported on Form 990-T, lines 13(B), 29, 31, and 33. [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 $36.2 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 $2.7 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) social and recreational clubs, section 501(c)(9) voluntary employees' beneficiary associations, and section 501(c)(17) supplemental unemployment benefit trusts only. [8] Includes excess exempt-activity expenses from Form 990-T, Schedule I, and excess readership costs from Form 990-T, Schedule J. NOTE: Detail may not add to totals because of rounding.
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