990-T 1999[325]

Unrelated Business Income Tax Returns, 1999 by Margaret Riley T he number of nonprofit organizations reporting “unrelated business income” (UBI) declined by nearly 9 percent between Tax Years 1998 and 1999. Gross UBI, amounting to $7.7 billion for 1999, increased only slightly over the previous year, by less than 2 percent. Of the 42,151 organizations filing a 1999 Form 990-T, Exempt Organization Business Income Tax Return, 17,781 had gross UBI of $10,000 or less, the threshold for being exempted from filing return schedules and reporting detailed information on deductions. Organizations in this income group filed 20-percent fewer returns and reported a 21-percent decrease in aggregate gross UBI, compared to 1998. The 24,369 organizations with gross UBI above $10,000 were required to fill out a complete Form 990-T, including all applicable schedules. This income group filed about 1-percent more returns and reported a 2-percent increase in aggregate gross UBI for 1999. Income is defined as UBI if it is produced from an activity that is both conducted on a regular basis and not directly related to an organization’s tax-exempt mission. The fact that the income may be used for furthering an organization’s exempt purposes does not alter the definition. Any profits from an organization’s unrelated business activities are taxed at regular corporate or trust income tax rates [1, 2]. After offsetting total gross UBI of $7.7 billion with $6.8 billion of deductions, the resulting unrelated business taxable income (less deficit) for 1999 was $0.9 billion [3]. Although this appears to be a dramatic change from 1998--an overall loss of $0.6 billion was reported--it is not a real change. It is due to a recently discovered problem in taxpayers’ reporting of the “net operating loss deduction.” See revised 1998 data in Figure A, and refer to the section, “Adjustments to Taxpayer Misreporting of Net Operating Loss Deduction,” for an explanation of how erroneous taxpayer reporting of this deduction has affected previous years’ statistics and how this was corrected during SOI processing of Tax Year 1999 returns that are the basis for this article. Figure A contains the financial statistics cited above, plus other selected data items from Tax Years 1998 and 1999 Forms 990-T. The number of taxable Margaret Riley is a statistician with the Special Studies Special Projects Section. This article was prepared under the direction of Paul Arnsberger, Acting Chief. Figure A Selected Items from Exempt Organization Business Income Tax Returns, Tax Years 1998-1999 [Money amounts are in thousands of dollars] Percentage change, Item 1998 1999 1998 to 1999 (1) (2) (3) Number of returns, total....................................................................................................................... 46,208 42,151 -8.8 With gross unrelated business income of $10,000 or less¹................................................. 17,781 22,124 With gross unrelated business income over $10,000¹....................................................................................................................... 24,084 24,369 +1.2 With unrelated business taxable income ²...................................................................... 24,332 20,718 Without unrelated business 2, 3 taxable income ...................................................................... 21,876 21,433 4, 5 -19.6 -14.9 -2.0 Gross unrelated business income............................................................................................................... 7,584,915 7,722,135 +1.8 Total deductions ...................................................................... 6,484,443 6,834,850 2, 5 +5.4 Unrelated business taxable income (less deficit) ...................................................................... 1,100,470 887,284 Deficit ........................................................ 569,283 5 -19.4 +5.0 Unrelated business taxable income ²...................................................................... 1,669,753 1,484,921 -11.1 597,637 Unrelated business income tax...................................................................... 505,896 423,065 -16.4 Total tax...................................................................... 464,288 421,746 -9.2 ¹ Organizations with gross unrelated business income 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 carryover, which all organizations reported separately). ² The terms "unrelated business taxable income (less deficit)" and "unrelated business taxable income" replace the terms "net income (less deficit)' and "net income (taxable profit)," respectively, which were used in previously published SOI Bulletin articles on unrelated business income tax returns. Only the terminology has changed; in the case of any of the four terms used to cite data in this and all previous years' articles, the source of the data is the Form 990-T line item named "Unrelated business taxable income." See footnote 3 in this article for an explanation of this change. ³ Includes returns with deficits and "breakeven" returns with equal amounts of gross unrelated business income and total deductions. 4 Excludes cost of sales and services, which was subtracted form 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 $2.1 billion for 1998 and $2.2 billion for 1999. Previously published amounts of total deductions, unrelated business taxable income (less deficit), and deficit for 1998 have been revised. Revised amounts take into account certain adjustments made to reported amounts of the "net operating loss deduction." See the section, "Adjustments to Taxpayer Reporting of Net Operating Loss Deduction," in this article. 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. 5 and nontaxable returns is split about equally, at 49 percent and 51 percent, respectively. Based on $1.5 billion of total unrelated business taxable income collectively reported for 1999, the associated unrelated business income tax (UBIT) was $423.1 million, a 16-percent decrease from 1998. After adjusting UBIT for certain credits and other taxes, the result- 141 Unrelated Business Income Tax Returns, 1999 142 ing total tax reported was $421.7 million, which was 9 percent less than the amount reported for 1998 [4]. The large percentage decrease in the amount of UBIT reported between 1998 and 1999 is not attributable to changes in the Form 990-T filing population; rather, much of the decrease is attributable to an organization that reported UBIT in 1998 but not in 1999. The $421.7 million of total tax for 1999 are apportioned as $423.1 million of unrelated business income tax, plus $0.8 million of alternative minimum tax and $3.4 million of “proxy tax” on certain nondeductible lobbying and political expenditures, minus $5.4 million of tax credits [5, 6, 7] . (Detail does not add to total because of rounding.) The proxy tax is required to be reported on Form 990-T and is included in total tax, but it has no connection to the unrelated business income tax or an organization’s involvement in unrelated business activities. The $3.4 million shown in the total tax computation above are only as reported by Form 990-T filers with gross unrelated business income (UBI) above the $1,000-filing threshold, a criterion for selection for the 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 unpublished data available from the IRS Business Returns Transaction File, $20.9 million of proxy tax were reported on 634 returns for Tax Year 1999. About 68 percent of these returns were filed solely to report the proxy tax (no income from unrelated business activities was reported). Figure B Distribution of Gross Unrelated Business Income, by Internal Revenue Code Section, Tax Year 1999 All others 16% 1 501(c)(7) 7% $7.7 Billion 501(c)(6) 11% 501(c)(3) 52% 501(c)(9) 14% 1 Includes any other organizations tax-exempt under Internal Revenue Code sections 501(c)(2)-(25), as well as Code section 220(e), 401(a), 408(e), 408A, 529(a), and 530(a) organizations. NOTE: See the Appendix to this article for a description of the various types of tax-exempt organizations. FinancialStatisticsbySelectedTypesof Organization OrganizationsClassifiedbyInternalRevenueCode Scin eto By far, the Internal Revenue Code section 501(c)(3) “charitable” organizations accounted for the largest portion of gross UBI attributable to a single organization type for 1999, reporting $4.0 billion, or 52 percent of the total (Figure B) [8]. Charitable and other types of nonprofit organizations subject to the unrelated business income tax provisions are described by Internal Revenue Code section in the Appendix to this article. Also, see Table 1 at the end of this article for additional data by type of organization. As a group, charitable organizations comprised 28 percent of Form 990-T filers and were liable for 28 percent of total tax liability. The next largest group in terms of gross UBI, the section 501(c)(9) voluntary employee beneficiary organizations (VEBA’s), reported $1.1 billion of gross UBI. These organizations made up only 2 percent of all filers, but were responsible for 14 percent of gross UBI and 39 percent of total tax. Collectively, the section 501(c)(6) business leagues, chambers of commerce, real estate boards, and like organizations accounted for another 15 percent of filers; 11 percent, or $0.9 billion of gross UBI; and 5 percent of total tax. The section 401(a) pension, profit-sharing, or stock bonus plan trusts were liable for 15 percent of total tax, but represented less than 2 percent of filers and reported only 4 percent of gross UBI. While section 501(c)(7) social and recreational clubs filed an additional 16 percent of all returns, they accounted for smaller portions of gross UBI and total tax, 7 percent and 6 percent, respectively. OrganizationsClassifiedbyTypeofEntity Overall, three out of four organizations filing Form 990-T for 1999 were tax-exempt corporations, and one out of four was set up as a trust (Figure C). The tax-exempt corporations were responsible for slightly 142 Unrelated Business Income Tax Returns, 1999 Figure C Distribution of Gross Unrelated Business Income (UBI) and Total Tax, by Type of Entity, Tax Year 1999 Gross UBI Tax-exempt trusts 25% $7.7 Billion percent were corporate entities, and the remainder were trusts. Exempt corporations with taxable income were liable for 43 percent of total tax, while exempt trusts with taxable income accounted for 57 percent. Typically, the trusts, by nature of their fiduciary role and the small number of staff required to operate, report relatively low amounts of deductions, compared to the corporate entities. This is apparent from the proportions of total deductions reported by the two types of organizations in Table 4--83 percent for exempt corporations and 17 percent for exempt trusts. Exempt corporations reported an average deduction of approximately $122,000, compared to an average deduction reported by trusts of $45,000, well under half of the corporate amount. OrganizationsClassifiedbyMajorUnrelated BusinessActivityorGrouping The list of NAICS codes provided with the Form 990-T instructions contains 19 of the 20 major industrial sectors (Public Administration is excluded) and 164 selected industries. In addition, five special codes are provided with the Form 990-T NAICS list. These five codes describe specific types of unrelated business activities, which correspond to line-item descriptions in the income statement section of the tax return. The five special classifications are “unrelated debt-financed activities, except rental of real estate,” “investment activities of Code section 501(c)(7), (9), or (17) organizations,” “passive income activities with controlled organizations,” “rental of personal property,” and “exploited exempt activities.” For statistical purposes, the first three of these activities are grouped within the Finance and Insurance sector. Rental of personal property is included in the Real Estate and Rental and Leasing sector. The last special activity is treated as an independent category and is not included in any of the NAICS major industrial sectors. The five special types of activities were listed separately because the tax treatment of income received from these activities is governed by special rules that are applied specifically to Form 990-T filers. Each of the five special classifications is defined in the Explanation of Selected Terms section of this article. The distribution of gross UBI by major industrial activity or grouping shown in Table 5 at the end of this article, and also illustrated in Figure D, reveals 143 Tax-exempt corporations 75% Total Tax Taxexempt trusts 57% $0.4 Billion Tax-exempt corporations 43% more than four-fifths of the aggregate total of gross UBI reported. All of the corporate entities were exempt under Internal Revenue Code section 501(c). Eleven percent of the trusts were section 501(c) organizations, 7 percent were section 401(a) pension, profit-sharing, and stock bonus plans, and 82 percent were section 408(e) or 408(A) Individual Retirement Arrangements. As indicated in Table 4 at the end of this article, of the 20,718 nonprofit organizations that had unrelated business taxable income for 1999, nearly 65 Unrelated Business Income Tax Returns, 1999 that 75 percent of the $7.7 billion of total gross UBI is attributable to just 5 of the 20 major categories of primary unrelated business activities or industrial groupings. These five categories were “finance and insurance,” (28 percent of gross UBI, reported by 34 percent of all organizations); “professional, scientific, and technical services” (19 percent of gross UBI, reported by 16 percent of all organizations); “healthcare and social assistance” (12 percent of gross UBI, reported by 3 percent of all organizations); “arts, entertainment, and recreation” (8 percent of gross UBI, reported by 10 percent of all organizations); and “real estate and rental and leasing” (8 percent of gross UBI, reported by 12 percent of all organizations) [9]. Figure D Distribution of Gross Unrelated Business Income, by Major Category of Primary Unrelated Business Activities, Tax Year 1999 All others¹ 25% Finance and insurance 28% 144 Arts, entertainment, and recreation 8% Real estate and rental and leasing 8% $7.7 Billion Healthcare and social assistance 12% Professional, scientific, and technical services 19% 1 Includes all other major categories of primary unrelated business activities, as shown in Table 5 at the end of this article. 144 “Professional, scientific, and technical services” included, among other activities, advertising, legal, accounting, payroll, research and development, and computer programming services. The finance and insurance sector included the special category, “investment activities of section 501(c)(7), (9), and (17) organizations,” to which 16 percent of total gross UBI was attributable. All investment income, whether debt-financed or not, of section 501(c)(7), (9), and (17) organizations is considered unrelated business income, while the investment income of other types of organizations is generally not taxed unless the investment was purchased with borrowed funds. The three most frequently reported unrelated business activities within the “healthcare and social assistance” sector were “medical and diagnostic laboratories” (reported by 43 percent of organizations within the sector), “child day care services” (10 percent), and “all other ambulatory health care services” (10 percent). Overall, the most frequently reported primary unrelated business activities selected from the NAICS-based list provided in the Form 990-T filing instructions booklet were “advertising and related services” (5,451 returns), “trusts, estates, and agency accounts,” reported mostly by trustees of Individual Retirement Arrangements and pension funds (4,834 returns), and “investment income of section 501(c)(7), (9), and (17) organizations” (3,842 returns). Organizations reporting one of these three primary activities accounted for one-third of all returns filed for 1999. The top three primary activities, in terms of the amount of gross UBI attributable to them, were “investment income of section 501(c)(7), (9), or (17) organizations” ($1.2 billion), “advertising and related services” ($1.0 billion), and “medical and diagnostic laboratories” ($0.6 billion), which together accounted for 37 percent of gross UBI. Forty-one percent of total tax reported for 1999 is attributable to organizations that reported a primary activity in the major grouping, “investment activities of section 501(c)(7), (9), and (17) organizations.” Most of these organizations were section 501(c)(9) VEBA’s, which, as discussed above, are trusts that typically report a relatively small amount of deductions and, therefore, incur comparatively larger amounts of tax liability. Organizations reporting primary activities that are within the “other finance and insurance” category were responsible for 14 percent of total tax and accounted for 20 percent of all filers. Close to three-quarters of these organizations were Individual Retirement Arrangement trusts, and another 14 percent were regional farm bureaus. Unrelated Business Income Tax Returns, 1999 Another 12 percent of total tax liability is attributable to organizations that reported a primary activity of “unrelated debt-financed activities, other than rental of real estate,” one of the unrelated business industrial activities specially designated for Form 990-T filers. (See the definition of Unrelated DebtFinanced Income in the Explanation of Terms section at the end of this article.) AdjustmentsforTaxpayerMisreportingofNet OperatingLossDeduction After subtracting current-year deductions from income, filers of Form 990-T are permitted to use part or all of a net operating loss carryover from prior years as an additional deduction to offset any remaining positive income. On Form 990-T, this is called the net operating loss deduction (NOLD), as distinguished from the entire amount of the net operating loss carryover [10]. (See the definition of Net Operating Loss Deduction in the Explanation of Terms section of this article.) The NOLD amount should be less than or equal to the positive income it offsets. During processing of the sample of returns for the Tax Year 1999 Form 990-T Statistics of Income study, it was discovered that many organizations reported an amount of NOLD that exceeded the amount of positive income it was offsetting, resulting in a net deficit amount, rather than netting the positive income amount to zero. In other cases, taxpayers were reporting an amount of NOLD even when a loss (current-year deductions were larger than income) had been reported, thus increasing the loss and resulting in a net deficit amount that was larger than it should have been. It is unclear why filers of Form 990-T are reporting the NOLD in this manner, but it is strongly speculated that this method serves as an accounting tool whereby the final net deficit shown on the current year’s return represents the total net operating loss carryover available for use with future years’ returns, making it a convenient reference for the preparer of the following year’s tax return. Entering the entire amount of net operating loss carryover available, rather than the appropriate deduction amount, did not change an organization’s final tax liability on the current year’s return. As stated above, the erroneous reporting resulted in one of two situations: (1) what should have been a zero amount became a negative amount, or (2) an amount that was already negative became a larger negative. In both circumstances, the outcome did not affect an organization’s liability for UBIT or total tax. However, the erroneous reporting did affect the amount of deficit reported, artificially inflating this statistic for all SOI study years prior to 1999 [11]. After discovering the NOLD reporting anomaly, an automated “fix” to the data entry system was instituted for Tax Year 1999 and all future study years. During processing of SOI study returns, when a NOLD amount is entered that is too large, based on the amount it is offsetting, the correct NOLD amount is computer-generated and replaces the incorrect amount. In cases where a NOLD amount is entered on a return with a current-year loss, the NOLD amount is changed to zero. Based on Tax Year 1999 sample estimates, there were 6,724 returns where NOLD was incorrectly reported (overstated), and the aggregate difference between the taxpayers’ entries and the adjusted entries was nearly $2.0 billion. This represents a 93-percent decrease in the initial, erroneously reported NOLD amount. For the years 1990-98, Figure E shows the amount of NOLD as initially reported, an adjusted (correct) NOLD amount, the difference between the two amounts, and the percentage decrease in the initially reported amount. In addition, the figure shows initially-reported and adjusted amounts of unrelated business taxable income (less deficit) for each year. The adjusted amounts take into account the corrected amounts of NOLD. In all cases, aggregate unrelated business taxable income (less deficit) changed from negative to positive. Because the NOLD reporting problem was not discovered until processing the Tax Year 1999 study returns, the data files for study years 1990-98 contain the initially reported NOLD amounts. However, as already stressed, the amounts of UBIT and total tax liability on all SOI Form 990-T study files were unaffected and, therefore, are correct. Summary Gross “unrelated business income” (UBI) reported on Form 990-T, Exempt Organization Business Income Tax Returns, increased by only 2 percent between Tax Years 1998 and 1999, and the number of organizations filing Form 990-T declined by 9 percent. Organizations with gross UBI of $10,000 or less, the threshold for being excepted from filling out certain parts of the return, filed 20-percent fewer 145 Unrelated Business Income Tax Returns, 1999 Figure E Selected Data from Returns with Net Operating Loss Deduction (NOLD), Tax Years 1990-1999 [Money amounts are in thousands of dollars] Reported Number of Tax year returns with NOLD initially reported (1) (2) (3) 73.3 50.7 73.0 79.0 69.1 64.3 75.9 82.4 81.5 81.0 (4) 2,106,206 1,842,182 1,731,847 1,630,832 1,567,512 1,465,135 1,342,759 1,277,914 757,815 673,345 (5) 152,531 144,859 140,038 154,547 101,116 75,637 80,333 55,693 43,578 43,462 (6) 1,953,675 1,697,323 1,591,809 1,476,285 1,466,396 1,389,498 1,262,426 1,222,221 714,237 629,883 (7) 92.8 92.1 91.9 90.5 93.5 94.8 94.0 95.6 94.2 93.5 Number of returns with NOLD misreported Col. (2) as a percentage of col. (1) Total NOLD as initially reported Total NOLD as corrected Difference between col. (4) and col. (5) Percentage decrease in col. (4) unrelated business taxable income (less deficit) (8) -1,066,391 -596,853 -686,374 -801,054 -973,648 -1,127,001 -1,047,239 -1,113,402 -630,448 -604,916 Adjusted unrelated business taxable income (less deficit) (9) 887,284 1,100,470 905,435 675,231 492,748 262,497 215,187 108,819 83,789 24,967 1 1999 ²........................................................................... 9,177 6,724 1998........................................................................... 13,328 6,756 1997........................................................................... 7,765 5,670 1996........................................................................... 9,147 7,223 1995........................................................................... 8,165 5,640 1994........................................................................... 8,547 5,494 1993........................................................................... 6,844 5,196 1992........................................................................... 6,206 5,116 1991 ³........................................................................... 4,686 3,819 1990 ³........................................................................... 4,601 3,729 ¹ Unrelated business taxable income (less deficit) was recomputed, using the corrected amount of the net operating loss deduction. ² The net operating loss deduction (NOLD) problem was discovered during processing of Tax Year 1999 study returns; therefore, the final study file for that year contains corrected data. Table 7 at the end of this article shows 4,513 returns with NOLD in columns (6) plus (46). Of the 6,724 returns shown in column (2), above, 4,664 had NOLD changed to zero and the remainder had NOLD reduced, resulting in a final count of 4,513 returns with NOLD for 1999. ³ Statistics for 1990 and 1991 include only returns filed by organizations with gross unrelated business income greater than $10,000. Smaller organizations were not required to report the net operating loss deduction separately for those years; rather, it was included in a single total reported for all deductions. 146 146 returns and reported a 21-percent decrease in aggregate gross UBI, while those with gross UBI above $10,000 filed 1-percent more returns and reported a 2-percent increase in aggregate gross UBI. After offsetting total gross UBI of $7.7 billion with $6.8 billion of deductions, the resulting unrelated business taxable income (less deficit) for 1999 was $0.9 billion. Based on $1.5 billion of total unrelated business taxable income, the associated unrelated business income tax was $423.1 million. Fifty-two percent, or $4.0 billion, of gross UBI reported for 1999 was attributable to Internal Revenue Code section 501(c)(3) “charitable” organizations. Overall, three out of four organizations filing Form 990-T for 1999 were tax-exempt corporations, and the remainder were trusts. Exempt corporations with positive unrelated business taxable income (UBTI) accounted for 66 percent of total gross UBI and 43 percent of total tax, while exempt trusts with UBTI accounted for 34 percent and 57 percent, respectively. The top three major categories of primary unrelated business activities, in terms of gross UBI, were “professional, scientific, and technical services” (19 percent of gross UBI, reported by 16 percent of all organizations); “investment activities of section 501(c)(7), (9), and (17) organizations” (16 percent of gross UBI, reported by 9 percent of all organizations); and “healthcare and social assistance” (12 percent of gross UBI, reported by 3 percent of all organizations). During processing of the study sample of Tax Year 1999 returns, it was discovered that many Form 990-T filers were deducting the entire amount of any previous year’s net operating loss carryover from net income (even when net income was zero or negative), rather than deducting only the part of the carryover amount needed to offset any positive net income amount. Entering the entire amount of the net operating loss carryover, as opposed to entering only the appropriate deduction amount, did not affect a filer’s unrelated business income tax liability, but it did inflate the amount of deficit reported. Adjustments to correct inaccurately reported net operating loss deduction (NOLD) amounts for 1999 resulted in a 93-percent reduction in the initially reported aggregate NOLD, from $2.1 billion to $152.5 million. SOI data files for 1999 and later study years will contain corrected amounts of NOLD. Figure E in the section, “Adjustments for Taxpayer Misreporting of Net Operating Loss Deduction,” shows initially reported and corrected amounts of aggregate NOLD for Tax Years 1990-1999. Unrelated Business Income Tax Returns, 1999 DataSourcesandLimitations The statistics in this article are based on a sample of Tax Year 1999 Forms 990-T, Exempt Organization Business Income Tax Returns. The Internal Revenue Service required organizations having accounting periods beginning in 1999 (and, therefore, ending between December 1999 and November 2000, for full-year return filers) to file a 1999 Form 990-T to report unrelated business income of $1,000 (the filing threshold) or more. The associated required filing period for Tax Year 1999 Forms 990-T generally spanned May 2000 to April 2001, but extensions of time to file beyond this period were granted to many organizations. For all Internal Revenue Code section 220(e), 401(a), 408(e), 408A, and 530(a) trusts, the required accounting period was Calendar Year 1999, and the filing date was April 15, 2000. Returns filed after Calendar Year 2001 were not included in the sample. Because of the various accounting periods of the organizations filing a 1999 return, the financial activities covered in this article span the period January 1999 through November 2000 (although the majority of activities occurred during Calendar Year 1999). The 1999 Form 990-T study design incorporated a special “integrated” sample to gather information on “related” (tax-exempt) and “unrelated” (taxable) income and expenses for organizations that filed Form 990, Return of Organization Exempt from Income Tax (or Form 990-EZ, the short-form version of this information return), and Form 990-T. Form 990-EZ may be completed by smaller organizations, those with gross receipts of less than $100,000 and end-of-year assets of less than $250,000. This integrated sampling program ensured that the Statistics of Income sample of Forms 990-T included unrelated business income tax returns filed by all organizations whose Form 990 or Form 990-EZ information returns were selected for the sample of Internal Revenue Code 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 sample included returns that were initially selected, based on independent Form 990-T sampling criteria, and additional returns that were not initially selected but were subsequently matched to returns in the Forms 990/990-EZ sample. These matched returns, along with any independently selected Forms 990-T that also had counterparts in the Forms 990/990-EZ sample, formed the “integrated” portion of the Form 990-T sample [12]. The population from which the 1999 Form 990-T sample was drawn consisted of Form 990-T records posted to the IRS Business Master File system during 2000 and 2001. The returns in the sample were stratified, based on the size of gross unrelated business income (UBI). A sample of 7,688 returns was selected from a population of 42,279. After excluding returns that were selected for the sample but later rejected, the sample size was 7,661, and the estimated population size was 42,151. Rejected returns included those which had gross UBI below the $1,000 filing threshold; were filed only to claim a refund or report the “proxy tax”; were filed for a part-year accounting period for 1999, and a full-year return was also filed for that year; or were filed for a part-year accounting period that began in a year other than 1999. For example, a final return filed for the short period of January 2000-June 2000 may have been initially selected for the 1999 sample based on the criterion of an accounting period that ended between December 1999 and November 2000, but it was later rejected because, in actuality, it was a Tax Year 2000 return. The designed sampling rates ranged from a minimum of 3 percent (Form 990-T gross UBI less than $20,000, with either no Form 990/990-EZ match or a Form 990/990-EZ match to a Code section 501(c)(3) return with total assets under $1,000,000) to a maximum of 100 percent (either Form 990-T gross UBI of $300,000 or more, or Form 990-T with any amount of gross UBI and a match to a section 501(c)(3) Form 990 with total assets of $30,000,000 or more). Other Forms 990/990-EZ/990-T matches within various ranges of gross UBI, assets, and Internal Revenue Code sections were selected at rates ranging from 6 percent to 45 percent. See Figure F for population counts, sample counts, designed sample rates, and achieved sample rates, by size of gross unrelated business income reported on Form 990-T and size of total assets reported on Form 990 or Form 990-EZ. The information presented in this article was obtained from returns as originally filed with the IRS. The data were subjected to comprehensive testing and correction procedures in order to improve statistical reliability and validity. In most cases, changes 147 Unrelated Business Income Tax Returns, 1999 Figure F Population and Sample Counts, and Designed and Achieved Sample Rates, by Size of Gross Unrelated Business Income on Form 990-T and Size of Total Assets on Matching IRC Section 501(c)(3) Form 990 or Form 990-EZ, Tax Year 1999 Sample group number Size of gross unrelated business income (UBI) on Form 990-T and size of total assets on matching IRC section 501(c)(3) Form 990 or Form 990-EZ ¹ Population counts (1) Sample counts (2) Designed sample rate (3) Achieved sample rate (4) 1 Gross UBI $1,000 under $20,000 and total assets under $1,000,000, or Gross UBI $1,000 under $20,000 and no matching Form 990 or Form 990-EZ...................................................................... 21,942 694 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...................................................................... 7,509 436 Gross UBI $1,000 under $60,000 and total assets $2,500,000 under $10,000,000, or Gross UBI $60,000 under $150,000 and total assets under $10,000,000, or Gross UBI $60,000 under $150,000 and no matching Form 990 or Form 990-EZ...................................................................... 5,357 695 Gross UBI $1,000 under $150,000 and total assets $10,000,000 under $30,000,000, or Gross UBI $150,000 under $300,000 and total assets under $30,000,000, or Gross UBI $150,000 under $300,000 and no matching Form 990 or Form 990-EZ...................................................................... 2,884 1,276 Gross UBI $300,000 or more, or total assets $30,000,000 or more...................................................................... 4,587 All sample groups ²...................................................................................................................... 42,279 4,587 7,688 0.0300 0.0316 2 0.0600 0.0581 3 0.1300 0.1297 4 0.4500 1.0000 N/A 0.4424 1.0000 N/A 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 returns in the Forms 990 and 990-EZ sample of IRC section 501(c)(3) filers. Form 990-EZ may be completed by smaller organizations, those with gross receipts of less than $100,000 and end-of-year assets of less than $250,000. ² After excluding returns that were originally selected for the sample but later rejected, the sample size was 7,661, and the estimated population size was 42,151. 148 made to the original return as a result of administrative processing, audit procedures, or a taxpayer amendment were not incorporated into the data base. 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 CV’s for selected financial data. CV’s are not shown for returns with gross UBI of $500,000 or more because they were sampled at a 100-percent rate and, therefore, are not subject to sampling variability. A discussion of the reliability of estimates based on samples and methods for evaluating both the magnitude of sampling and nonsampling error and the precision of sample estimates can be found in the general Appendix, located near the back of this issue of the Bulletin. Figure G Coefficients of Variation for Selected Items, by Size of Gross Unrelated Business Income, Tax Year 1999 Gross Number Size of gross unrelated business income of returns unrelated income Total business deductions Unrelated business taxable income ¹ Total tax Coefficient of variation (percentages) (1) (2) (3) (4) (5) Total....................................................................................................................... 42,151 0.28 0.40 0.50 0.46 $1,000 under $10,001 ²........................................................................... 17,781 3.25 6.70 6.95 $10,001 under $100,000 ²........................................................................... 16,216 1.66 2.47 5.33 $100,000 under $500,000........................................................................... 5,925 1.73 2.03 2.72 $500,000 or more........................................................................... N/A 2,228 N/A N/A 7.58 6.42 2.95 N/A N/A--Not applicable because the achieved sample rate was 100 percent. ¹ The term "unrelated business taxable income" replaces the term "net income (taxable profit)," which was used in previously published SOI Bulletin articles on unrelated business income tax returns. Only the terminology has changed; in the case of either of the two terms used to cite data in this and all previous years' articles, the source of the data is the Form 990-T line item named "Unrelated business taxable income." See footnote 3 in this article for an explanation of this change. ExplanationofSelectedTerms In some of the following explanations, tax-exempt organizations are cited by the Internal Revenue Code 148 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 (only a "partial" return was required) and all other Form 990-T filers (a more detailed "complete" return was required). Organizations with gross UBI below $1,000 were not required to file Form 990-T. Unrelated Business Income Tax Returns, 1999 section under which they are described. The various types of tax-exempt organizations subject to the unrelated business income tax provisions are described by Code section in the Appendix to this article. In addition to helping the reader understand the terms contained in the written content of this article, these explanations are also helpful when using Tables 1 through 7, at the end of the article. Advertising Income.--Gross income realized by a tax-exempt organization from the sale of advertising in a periodical was gross income from an unrelated trade or business activity involving the “exploitation of an exempt activity,” namely, the circulation and readership of the periodical developed by producing and distributing the readership content of that periodical. Advertising income was reported separately from other types of “exploited exempt activity income.” (See the explanation of Exploited Exempt Activity Income.) Internal Revenue Code section 501(c)(7), (9), and (17) organizations reported gross advertising income, as well as other types of “exploited exempt activity income,” as gross receipts from sales and services. All other organizations reported this income separately. Capital Gain Net Income.--Generally, organizations required to file Form 990-T (except organizations tax-exempt under Internal Revenue Code sections 501(c)(7), (9), and (17)) were not taxed on net gains from the sale, exchange, or other disposition of property. However, net capital gains on sales of debtfinanced property, certain gains on the cutting of timber (section 1231), and gains on sales of certain depreciable property (described in sections 1245, 1250, 1252, 1254, and 1255) were taken into account in computing capital gain net income. Also, any gain or loss passed through from a partnership or S corporation, or any gain or loss on the disposition of S corporation stock by a qualified tax-exempt (defined in the explanation of Income (Less Loss) from Partnerships and S Corporations), is 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 the limit on the deduction was determined in relation to UBTI computed without regard to the contributions deduction, rather than in relation to adjusted gross income. Contributions in excess of the respective corporate or trust limitations may be carried over to the next 5 taxable years, subject to certain rules. The contributions deduction was allowed whether or not directly connected with the carrying on of a trade or business. 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 directly connected with rental of personal property; those allocable to unrelated debt-financed income; those directly connected with 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; bad debts; interest; taxes; 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” 149 Unrelated Business Income Tax Returns, 1999 150 150 (directly connected) and the “specific deduction” (not directly connected), both also defined below. Deductions Not Directly Connected With Unrelated Business Income.--The component deductions were “set-asides,” “excess exempt expenses,” charitable contributions, and the “specific deduction.” The specific deduction was reported, when applicable, by all organizations with positive taxable income; the other types of deductions not directly connected with UBI were reported separately, when applicable, only by tax-exempt organizations with gross UBI above $10,000. (See, also, the explanations of Set-Asides, Excess Exempt Expenses, and the Specific Deduction.) Excess Exempt Expenses.--The two types of “excess” expenses allowed as deductions from unrelated business income were (1) excess exempt expenses attributable to commercial exploitation of exempt activities, and (2) excess exempt expenses attributable to advertising income. In the case of “exploited” exempt activity income (see the explanation of Exploited Exempt Activity Income, Except Advertising, below), if the expenses of the organization’s exempt activity exceeded the income from the exempt activity, then the excess expenses could be used to offset any positive net unrelated business income produced from exploiting the exempt activity, to the extent that it did not result in a loss. Excess expenses of a commercially exploited exempt activity could not be used to offset income from another type of unrelated business activity if the unrelated activity did not exploit that particular exempt activity. In the case of excess exempt expenses attributable to advertising income, if the expenses attributable to producing and distributing the readership content of a periodical exceeded the circulation income, then the excess of readership costs over circulation income could be used to offset any net gain from advertising (gross advertising income less direct advertising costs), to the extent that it did not result in a loss. Exploited Exempt Activity Income, Except Advertising.--In some cases, exempt activities create goodwill or other intangibles that are capable of being exploited in a commercial manner. When an organization exploited such an intangible in commercial activities that did not contribute importantly to the accomplishment of an exempt purpose, the income it produced was gross income from an unrelated trade or business. An example of this type of activity would be an exempt scientific organization with an excellent reputation in the field of biological research that exploits its reputation regularly by selling endorsements of laboratory equipment to manufacturers. Endorsing laboratory equipment would not have contributed importantly to the accomplishment of any purpose for which tax exemption was granted to the organization. Accordingly, the income from selling such endorsements is gross unrelated business income. Exploited exempt activity income from advertising was reported separately from other types of exploited exempt activity income (see the explanation of Advertising Income). Internal Revenue Code section 501(c)(7), (9), and (17) organizations reported income from exploited exempt activities as part of gross receipts from sales and services. All other organizations reported this income separately. Gross Profit (Less Loss) from Sales and Services.--This was the gross profit (less loss) from any unrelated trade or business regularly carried on that involved the sale of goods or performance of services. It did not include income from unrelated business activities that were required to be reported separately on any of the tax form’s supporting schedules. For example, an Internal Revenue Code section 501(c)(7) social club would include gross restaurant and bar receipts from nonmembers in the calculation of gross profit (less loss) from sales and services, but would report its investment income from sales of securities on the required supporting schedule. Gross profit (less loss) from sales and services is computed as gross receipts from sales or services, less returns and allowances, minus cost of sales and services. Gross Unrelated Business Income (UBI).--This was the total gross unrelated business income prior to reduction by allowable deductions used in computing unrelated business taxable income. All organizations were required to report detailed sources of gross UBI. The components of gross UBI were gross profit (less loss) from sales and services; capital gain net income; net gain (less loss) from sales of noncapital assets; net capital loss deduction (trusts only); income (less loss) from partnerships and S corporations; rental income; unrelated debt-financed income; investment income (less loss) of Internal Revenue Code section 501(c)(7), (9), and (17) organizations; income (annuities, interest, rents, and royalties) from controlled organizations; “exploited exempt Unrelated Business Income Tax Returns, 1999 activity” income, except advertising; advertising income; and “other” income (less loss). (For an explanation of these sources of income, see the separate explanations of each component.) A tax-exempt organization’s income was treated as unrelated business income if it was from a trade or business that was regularly carried on by the organization and that was not substantially related to the performance of the organization’s exempt purpose or function (other than that the organization needed the profits derived from the unrelated activity). The term “trade or business” generally comprised any activities carried on for the production of income from selling goods or performing services. These activities did not lose their identity as trades or businesses merely because they were carried on within a larger aggregate of similar activities or within a larger complex of other endeavors that may, or may not, have been related to the exempt purposes of the organization. For example, soliciting, selling, or publishing commercial advertising is identified as a trade or business even though the advertising is published in an exempt organization’s periodical that contains editorial matter related to the organization’s exempt purpose. Income from Controlled Organizations.--A new definition of “controlled organization” was effective for tax years beginning after August 5, 1997. However, there was a 2-year grace period for organizations that had a written, binding contract with a controlled organization that was in effect on June 8, 1997. Organizations qualifying for the grace period reported income under the old law. Under both the old and new tax law provisions, 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.) For organizations that had tax years beginning on or before August 5, 1997, or were covered by the 2year grace period: When an exempt organization controls another organization, the gross annuities, interest, rents, and royalties received from the controlled organization are included in the gross UBI of the controlling organization at a specified ratio, depending on whether the controlled organization is tax- exempt or not. “Control” meant: (a) for a stock corporation, the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote, and ownership of at least 80 percent of the total number of shares of all other classes of stock of the corporation; or (b) for a non-stock organization, at least 80 percent of the directors or trustees of the organization were either representatives of, or directly or indirectly controlled by, a tax-exempt organization. For organizations that had tax years beginning after August 5, 1997, and were not covered by the 2year grace period: When an exempt organization controls another organization, the entire amount of gross annuities, interest, rents, and royalties (termed “specified payments” under the new law) received from the controlled organization are included in the gross UBI of the controlling organization, to the extent that the specified payments were claimed as a deduction from the controlling 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. 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 151 Unrelated Business Income Tax Returns, 1999 152 profit-sharing plan) or section 501(c)(3), and exempt from tax under section 501(a). Investment Income (Less Loss).--This income was reported only by organizations exempt under Internal Revenue Code sections 501(c)(7), (9), and (17) and included such income as gross unrelated debt-financed income, gross income from the ownership or sale of securities, and set-asides deducted from investment income in previous years that were subsequently used for a purpose other than that for which a deduction was allowed. (See, also, the explanation of Set-Asides.) All gross rents (except those that were exempt-function income) of section 501(c)(7), (9), and (17) organizations were treated as unrelated business income and were reported as “rental income.” Organizations exempt under sections other than 501(c)(7), (9), and (17) did not report “investment income (less loss).” Generally, these organizations’ investment income (dividends, interest, rents, and annuities) and royalty income were not taxed as unrelated business income, unless it was income, other than dividends, from a controlled organization or debt-financed income, or the rents were of the type described in the explanation of rental income. (See explanations of Income from Controlled Organizations, Rental Income, and Unrelated DebtFinanced Income.) Net Capital Loss (Trusts Only).--If a trust had a net loss from sales or exchanges of capital assets, it was allowed a deduction for the amount of the net loss or $3,000, whichever was lower. (Tax-exempt corporations were not allowed to deduct any excesses of capital losses over capital gains.) Taxexempt trusts reported the net capital loss deduction on Form 990-T as a negative component of gross unrelated business income. 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 deductions over receipts, prior to applying the NOLD) in computing unrelated business taxable income. However, the net operating loss carryover or carryback (allowed only to or from a tax year for which the organization was subject to tax on unrelated business income) was determined without taking into account any amount of exempt-function income or deductions that had been excluded from the computation of unrelated business taxable income. A “net operating loss” represented the excess of deductions over receipts for a specified year for which an organization reported an overall deficit from its unrelated trade or business activities. The net operating loss deduction statistics in this article represent only net operating loss carryovers from prior years because carrybacks from future years would be reported in a later year on an amended return, not on the return as initially filed (which served as the basis for the statistics). Other Deductions.--This included all types of unrelated business deductions that were not specifically required to be reported elsewhere on the tax return. Examples are fees for accounting, legal, consulting, or financial management services; insurance costs (if not for employee-related benefits); equipment costs; mailing costs; office expenses, such as janitorial services, supplies, or security services; rent; travel expenses; educational expenses; and utilities. Other Income (Less Loss).--This included all types of unrelated business income that were not specifically required to be reported elsewhere on the tax return. Examples are insurance benefit fees; member support fees; commissions; returned contributions that were deducted in prior years; income from insurance activities that was not properly set aside in prior years; recoveries of bad debts; and refunds of State or local tax payments, if the payments were previously reported as a deduction. Proxy Tax.--This was a tax on certain nondeductible lobbying and political expenditures paid or incurred after December 31, 1993, by organizations that were tax-exempt under Internal Revenue Code sections 501(c)(4), 501(c)(5), and 501(c)(6). If the organization failed to notify its members regarding their shares of dues to which nondeductible lobbying and political expenditures were allocable, or if the notice did not include the entire amount of dues that was allocable, then the proxy tax was imposed on the organization. It was computed as 35 percent of the aggregate amount of nondeductible lobbying expendi- 152 Unrelated Business Income Tax Returns, 1999 tures that was not included in the notices sent to the organization’s members. The proxy tax was required to be reported on Form 990-T and was included in total tax; however, there was no connection between the proxy tax and the taxation of income from an organization’s unrelated business activities. Rental Income.--For organizations tax-exempt under Internal Revenue Code sections other than 501(c)(7), (9), and (17), this was the amount of (1) gross rents from personal property (e.g., computer equipment or furniture) leased with real property, if the rental income from the personal property was more than 10 percent, but not more than 50 percent, of the total rents from all leased property; or (2) gross rents from both real property and personal property leased with real property if the personal property was more than 50 percent of the total rents from all leased property. Except for the second situation covered above, gross rents from real property were generally excluded in computing unrelated business taxable income. In addition, gross rents from personal property that did not exceed 10 percent of the total rents from all leased property were excluded. Any rents not covered by the explanation of “rental income” had to be considered in terms of their taxability as unrelated business income from controlled organizations or unrelated debt-financed income, in that order. For organizations tax-exempt under sections 501(c)(7), (9), and (17), rental income included all gross rents (except those that were exempt-function income), with no exclusions. (See explanations of Income from Controlled Organizations and Unrelated Debt-Financed Income.) Set-Asides.--This deduction from investment income was allowed to social and recreational clubs (Internal Revenue Code section 501(c)(7)), voluntary employees’ beneficiary associations (section 501(c)(9)), and supplemental unemployment benefit trusts (section 501(c)(17)). The deduction was equal to the amount of passive income (generally, investment income) that these organizations set aside (1) to be used for charitable purposes or (2) to provide payment of life, health, accident, or other insurance benefits (section 501(c)(9) and (17) organizations only). However, any amounts set aside that exceeded the “qualified asset account” limit, as figured under section 419A, were not allowed as a deduction from unrelated business investment income; they were treated as taxable investment income. A sec- tion 419A qualified asset account is any account consisting of assets set aside to provide for the payment of disability benefits, medical benefits, severance pay benefits, or life insurance benefits. Specific Deduction.--The specific deduction was $1,000 or the amount of positive taxable income, whichever was less. The amount deducted was considered “not directly connected” with gross unrelated business income and was allowed to all organizations that had positive taxable income after all other types of deductions were taken. This deduction provided the equivalent benefit of the $1,000-gross unrelated business income filing threshold under which some organizations were exempted from filing a return and paying the unrelated business income tax. Total Deductions.--Total deductions included both deductions reported on the main part of Form 990-T and expense items reported on any of six supporting schedules, which were also part of the tax form. It excluded cost of sales and services ($2.2 billion for 1999), which was subtracted from gross receipts from sales and services in computing gross profit (less loss) from sales and services. Gross profit (less loss) from sales and services was a component of gross unrelated business income (UBI). Because Form 990-T filing requirements are based on gross UBI, and cost of sales and services is factored into the computation of gross income, the deduction for cost of sales and services is reported in the gross income section of Form 990-T, not the deductions section. Cost of sales and services was reported as a lump-sum total, but may have included depreciation, salaries and wages, and certain other types of deductible items. For this reason, the total amount shown for some of the separately reported components of total deductions, such as “salaries and wages,” may be understated. 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 tax from recomputing certain prior-year credits (“recapture taxes”), and the “alternative minimum tax.” 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 153 Unrelated Business Income Tax Returns, 1999 trust income tax rates that were in effect for the 1999 Tax Year, as shown in the following schedules. Tax Rates for Corporations Amount of unrelated business taxable income is: Over— $0 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 But not over— $50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 — Tax is: 15% $7,500 + 25% 13,750 + 34% 22,250 + 39% 113,900 + 34% 3,400,000 + 35% 5,150,000 + 38% 35% Of the amount over— $0 50,000 75,000 100,000 335,000 10,000,000 15,000,000 0 Tax Rates for Trusts Amount of unrelated business taxable income is: 154 Over— $0 1,750 4,050 6,200 8,450 But not over— $1,750 4,050 6,200 8,450 — Tax is: 15% $262.50 + 28% 906.50 + 31% 1,573.00 + 36% 2,383.00 + 39.6% Of the amount over— $0 1,750 4,050 6,200 8,450 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 debtfinanced property, and the gain was treated as unrelated debt-financed income. Income from debtfinanced property did not include rents from personal property (e.g., computers or furniture) leased with real property, certain passive income (generally, investment income) from controlled organizations, and other amounts that were otherwise included in computing unrelated business taxable income. Internal Revenue Code section 501(c)(7), (9), and (17) organizations reported all debt-financed income as “Investment Income (Less Loss).” All other organizations reported debt-financed income separately. NotesandReferences [1] A business activity is considered unrelated if it does not contribute importantly (other than the production of funds) to accomplishing an organization’s charitable, educational, or other purpose that is the basis for the organization’s tax exemption. In determining whether activities contribute importantly to the accomplishment of an exempt purpose, the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt function that they intend to serve. To the extent an activity is conducted on a scale larger than is reasonably necessary to perform an exempt purpose, it does not contribute importantly to the 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.) 154 Unrelated Business Income Tax Returns, 1999 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 of the city where the museum is located. The sale of the reproductions, regardless of which museum houses the original works, is considered to be “related” because it contributes importantly to the achievement of the museum’s exempt educational purpose by making works of art familiar to a broader segment of the public, thereby enhancing the public’s understanding and appreciation of art. However, the sale of souvenir items depicting the city in which the museum is located is considered to be “unrelated” because it has no causal relationship to art or to artistic endeavor, and, therefore, does not contribute importantly to the accomplishment of the museum’s exempt educational purposes. [2] The unrelated business income tax (UBIT) for nonprofit corporations was determined based on the regular corporate income tax rates in effect for Tax Year 1999. Nonprofit trusts were generally taxed at the regular individual (single status) income tax rates established for estates and trusts for Tax Year 1999. Trusts that were eligible for the maximum 28-percent tax rate on capital gain net income figured their tax based on Schedule D of Form 1041, U.S. Income Tax Return for Estates and Trusts. The corporate and trust tax-rate schedules are included in the definition of Unrelated Business Income Tax, found in the Explanation of Selected Terms section of this article. [3] The term “net income (less deficit),” which appeared in previously published SOI Bulletin articles on unrelated business income tax returns, is being replaced with the term “unrelated business taxable income (less deficit)” to distinguish the concept of net profit, which is based on standard accounting practices, from taxable profit, which is based on legal tax definitions. Similarly, the term “net income (taxable profit)” is being replaced with “unrelated business taxable income.” Only the terminology has changed; in the case of any of the four terms used to cite data in this and all previous years’ articles, the source of the data is the Form 990-T line item named “Unrelated business taxable income.” See the definition of Unrelated Business Taxable Income (Less Deficit) in the Explanation of Selected Terms section of this article. [4] The amount of total tax liability originally reported on Forms 990-T, as stated in these statistics, may not necessarily be the amount ultimately paid to the Internal Revenue Service (IRS). Changes in tax liability assessments can be made after the original return is filed, either by the taxpayer on an amended return, by the IRS after examination, or by rulings of the U.S. tax courts after litigation. [5] An 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 on certain nondeductible lobbying and political expenditures if the organization failed to notify its members regarding their shares of dues to which nondeductible lobbying and political expenditures were allocable, or if the notice did not include the entire amount of dues that was allocable. [6] Organizations with unrelated business income tax liability may have been liable for the alternative minimum tax (AMT) on certain adjustments and tax preference items. In addition to reporting AMT on Form 990-T, tax-exempt trusts with AMT were required to attach Form 1041, Schedule I, Alternative Minimum Tax, and 155 Unrelated Business Income Tax Returns, 1999 tax-exempt corporations with AMT were required to attach Form 4626 (Alternative Minimum Tax--Corporations). [7] Tax credits reported on Form 990-T may include the foreign tax credit, the general business credit, credit for prior-year minimum tax, and “other” credits, such as the possessions tax credit, nonconventional source fuel credit, and qualified electric vehicle credit. [8] The term “charitable” refers to tax-exempt organizations with purposes that are charitable, educational, scientific, literary, or religious in nature, or organizations that test for public safety or prevent cruelty to children or animals. The term also covers organizations that otherwise qualified for tax-exempt status under the Income Tax Regulations issued for Internal Revenue Code section 501(c)(3). [9] Industrial activities and groupings are compiled, based on the 1997 U.S. version of the North American Industrial Classification System (NAICS), which consists of 20 major industrial sectors, with 1,170 industries in the United States. See Executive Office of the President, Office of Management and Budget, North American Industry Classification System: United States, 1997, Berman Press, Lanham, MD, 1998. [10] Prior to this issue of the SOI Bulletin, articles on unrelated business income tax returns contained the term “net operating loss carryover” in column headings in Table 7, included at the end of each article. To be more precise and to emphasize that the amount cited is only the deductible part of the carryover, this and future articles will contain the term “net operating loss deduction.” [11] Once this reporting anomaly was detected for the 1999 study, a check of SOI study data files for Tax Years 1991-1998 showed a similar reporting pattern. [12] For additional information on the Form 990 and Form 990-T integrated sample design, see Harte, James M. and Hilgert, Cecelia H., “Enriching One Sample While Improving Another: Linking Differently Stratified Samples of Documents Filed by Exempt Organizations,” Statistics of Income: Turning Administrative Systems Into Information Systems, 1993. SOURCE: IRS, Statistics of Income Bulletin, Spring 2003, Publication 1136 (Revised 6-03). 156 156 Unrelated Business Income Tax Returns, 1999 Appendix Types of Tax-Exempt Organizations Subject to the Unrelated Business Income Tax Provisions, by Internal Revenue Code Section Code section 220(e) Description of organization Archer Medical Savings Accounts (MSA's) General nature of activities Fiduciary agent for accounts used in conjunction with high-deductible health plans to save funds for future medical expenses Fiduciary agent for pension, profit-sharing, or stock bonus plans Fiduciary agent for retirement funds Fiduciary agent for retirement funds; subject to same rules as traditional IRA's, except contributions are not tax deductible and qualified distributions are tax free Holding title to property for exempt organizations Activities of a nature implied by the description of the class of organization 401(a) 408(e) 408A Qualified pension, profit-sharing, or stock bonus plans Individual Retirement Arrangements (IRA's) Roth Individual Retirement Arrangements (IRA's) 501(c)(2) (3) Title-holding corporations for exempt organizations Religious, educational, charitable, scientific, or literary organizations; testing for public safety organizations. Also, organizations preventing cruelty to children or animals, or fostering national or international amateur sports competition Civic leagues, social welfare organizations, and local associations of employees (4) Promotion of community welfare and activities from which net earnings are devoted to charitable, educational, or recreational purposes Educational or instructive groups whose purpose is to improve conditions of work, products, and efficiency Improving conditions in one or more lines of business Pleasure, recreation, and social activities Lodge 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 (5) Labor, agricultural, and horticultural organizations (6) (7) (8) Business leagues, chambers of commerce, real estate boards, and like organizations Social and recreational clubs Fraternal beneficiary societies and associations (9) Voluntary employees' beneficiary associations (including Federal employees' voluntary beneficiary associations formerly covered by section 501(c)(10)) Domestic fraternal beneficiary societies and associations (10) 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 Activities of a mutually beneficial nature implied by the description of the class of organization (11) (12) Teachers' retirement fund associations Benevolent life insurance associations, mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations 157 Unrelated Business Income Tax Returns, 1999 Appendix Types of Tax-Exempt Organizations Subject to the Unrelated Business Income Tax Provisions, by Internal Revenue Code Section--Continued Code section 501(c)(13) (14) Description of organization 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 General nature of activities Arranging for burials and incidental related activities Providing loans to members or providing insurance of, or reserve funds for, shares or deposits in certain banks or loan associations Providing insurance to members, substantially at cost Financing crop operations in conjunction with activities of a marketing or purchasing association Fiduciary agent for payment of supplemental unemployment compensation benefits Providing for payments of benefits under a pension plan funded by employees Providing services to veterans or their dependents; advocacy of veteran's issues; and promotion of patriotism and community service programs Created by coal mine operators to satisfy their liability for disability or death due to black lung disease Providing funds to meet the liability of employers withdrawing from a multi-employer pension fund Providing insurance and other benefits to veterans or their dependents Providing funds for employee retirement income (15) (16) (17) Supplemental unemployment benefit trusts (18) Employee-funded pension trusts (created before June 25, 1959) Posts or organizations of past or present members of the armed forces (19) 158 (21) Black Lung Benefit Trusts (22) Withdrawal liability payment funds (23) Associations of past and present members of the armed forces founded before 1880 Trusts described in section 4049 of the Employee Retirement Income Security Act of 1974 Title-holding corporations or trusts with no more than 35 shareholders or beneficiaries and only one class of stock or beneficial interest Qualified State Tuition Plans (24) (25) Acquiring real property and remitting all income earned from such property to one or more exempt organizations; pension, profit-sharing, or stock bonus plans; or governmental units 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) Coverdall Education Savings Accounts 158 NOTE: Prepaid legal service funds, previously described in section 501(c)(20) of the Internal Revenue Code, were no longer tax exempt effective with tax years beginning after June 30, 1992. Unrelated Business Income Tax Returns, 1999 Table 1.--Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Unrelated Business Taxable Income (Less Deficit), Unrelated Business Taxable Income, and Total Tax, by Internal Revenue Code Section Describing Type of Tax-Exempt Organization, Tax Year 1999 [All figures are estimates based on samples--money amounts are in thousands of dollars] Gross Number Internal Revenue Code section of returns unrelated business income (UBI) (1) (2) Number of returns (3) Total deductions 1,2 Unrelated business taxable income (less deficit) ³ Number Total Unrelated business taxable income ³ tax Number of returns (8) 20,438 -613 5,906 ** 121 4,340 489 870 2,012 4,396 308 318 *56 -77 *44 46 ** -** ** 834 -** -** ---Amount (9) 421,746 -61,291 10,159 ** 3,286 119,273 3,080 6,604 22,531 26,322 1,300 162,695 *71 -1,329 *51 348 ** -** ** 1,557 -** -** ---5 Amount (4) 6,834,850 -69,629 34,270 ** 76,991 4,052,661 287,279 221,259 828,190 449,175 78,965 507,618 17,373 -35,263 *2,612 20,574 ** -** ** 151,721 -** -** *400 --- of returns (5) 33,532 -650 7,609 ** 244 9,136 1,114 1,784 4,247 5,692 622 393 214 -155 *52 77 ** -** ** 1,534 -** -** ---4 Amount (6) 887,284 -232,472 29,959 ** -3,935 -50,457 -1,772 7,431 26,576 81,774 1,766 555,535 -1,297 -1,614 *259 -2,628 ** -** ** 3,334 -** -** ---- (7) 1,484,921 -234,510 33,944 ** 10,373 388,899 12,302 24,826 72,745 112,779 6,327 564,208 403 -5,883 *306 1,391 ** -** ** 9,374 -** -** ---- All sections.......................................................................................... 41,927 42,151 7,722,135 220(e).................................................................................................... --401(a).................................................................................................... 699 302,100 408(e).................................................................................................... 8,708 64,230 ** ** 408A.................................................................................................... -681 8,676 ** 501(c)(2).................................................................................................... 327 327 73,056 501(c)(3).................................................................................................... 11,614 4,002,204 11,510 1,574 285,507 501(c)(4).................................................................................................... 1,573 2,342 228,689 501(c)(5).................................................................................................... 2,341 501(c)(6).................................................................................................... 6,157 6,157 854,766 501(c)(7).................................................................................................... 6,592 6,655 530,949 768 80,731 501(c)(8).................................................................................................... 768 501(c)(9).................................................................................................... 663 666 1,063,153 501(c)(10).................................................................................................... 265 265 16,076 501(c)(11).................................................................................................... ---- 501(c)(12).................................................................................................... 215 215 36,877 501(c)(13).................................................................................................... *52 *52 *2,871 501(c)(14).................................................................................................... 109 109 17,945 ** ** ** 501(c)(15).................................................................................................... 501(c)(16).................................................................................................... --501(c)(17).................................................................................................... ** ** ** ** 501(c)(18).................................................................................................... 6 -** ** 501(c)(19)....................................................................................................1,942 1,942 155,055 501(c)(21) .................................................................................................... --** ** 501(c)(22).................................................................................................... -** 501(c)(23).................................................................................................... ---501(c)(24).................................................................................................... ** ** ** 501(c)(25).................................................................................................... *17 *17 *400 ---529(a).................................................................................................... 530(a).................................................................................................... ---- *Estimate should be used with caution because of the small number of sample returns on which it is based. **Data deleted to avoid disclosure of information for specific taxpayers. However, data are included in the appropriate totals. ¹ Excludes cost of sales and services, which was subtracted from gross receipts from sales and services in computing gross profit from sales and services. Gross profit from sales and services was a component of gross unrelated business income (UBI). Cost of sales and services can include amounts attributable to depreciation, salaries and wages, and certain other deductible items. For all exempt organizations reporting gross UBI, cost of sales and services was $2.2 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ The terms "unrelated business taxable income (less deficit)" and "unrelated business taxable income" replace the terms "net income (less deficit)" and "net income (taxable profit)," respectively, which were used in previously published SOI Bulletin articles on unrelated business income tax returns. Only the terminology has changed; in the case of any of the four terms used to cite data in this and all previous years' articles, the source of the data is the Form 990-T line item named "Unrelated business taxable income." See footnote 3 in this article for an explanation of this change. 4 Excludes returns with unrelated business taxable income (less deficit) equal to zero. 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 any taxes from recapture of certain prior-year credits, the "alternative minimum tax," and the "proxy" tax on nondeductible lobbying and political expenditures. 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 $3.4 million. 6 Prepaid legal service funds, previously described in section 501(c)(20) of the Internal Revenue Code, were no longer tax-exempt, beginning with tax years after June 30, 1992. Therefore, these organizations are not listed in this table. NOTES: Detail may not add to totals because of rounding. See the Appendix to this article for a listing of the types of tax-exempt organizations, by the Internal Revenue Code section describing them. 159 Unrelated Business Income Tax Returns, 1999 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 1999 [All figures are estimates based on samples--money amounts are in thousands of dollars] Gross Number Size of gross unrelated business income (UBI) of returns unrelated business income (UBI) (1) 6 Total deductions Number of returns (3) Amount (4) 6,834,850 68,064 583,126 1,292,024 714,819 1,748,789 2,428,028 1,2 Unrelated business taxable income (less deficit) Number of returns (5) 33,532 13,941 13,017 4,841 837 726 170 4 3 Total Unrelated business taxable income 3 tax Number of returns (8) 20,438 9,813 7,182 2,510 458 376 99 5 Amount (6) 887,284 1,414 8,171 28,805 36,168 188,201 624,526 Amount (9) 421,746 3,571 20,788 49,967 29,938 106,256 211,226 (2) (7) 1,484,921 20,351 108,587 177,701 97,017 332,186 749,080 Total................................................................................................................ 42,151 7,722,135 41,927 $1,000 under $10,001 ....................................................................... 17,781 69,478 $10,001 under $100,000 ....................................................................... 16,216 591,297 $100,000 under $500,000....................................................................... 5,925 1,320,828 6 17,591 16,211 5,901 $500,000 under $1,000,000....................................................................... 1,078 1,080 750,986 $1,000,000 under $5,000,000....................................................................... 920 922 1,936,990 $5,000,000 or more....................................................................... 226 3,052,554 226 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 $2.2 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ The terms "unrelated business taxable income (less deficit)" and "unrelated business taxable income" replace the terms "net income (less deficit)" and "net income (taxable profit)," respectively, which were used in previously published SOI Bulletin articles on unrelated business income tax returns. Only the terminology has changed; in the case of any of the four terms used to cite data in this and all previous years' articles, the source of the data is the Form 990-T line item named "Unrelated business taxable income." See footnote 3 in this article for an explanation of this change. 4 5 Excludes returns with unrelated business taxable income (less deficit) equal to zero. 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 any taxes from recapture of certain prior-year credits, the "alternative minimum tax," and the "proxy" tax on nondeductible lobbying and political expenditures. 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 160 in unrelated business activities. For exempt organizations reporting gross UBI above the $1,000-filing threshold, total proxy tax was $3.4 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 (only a "partial" return was required) and all other Form 990-T filers (a more detailed "complete" return was required). 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. 160 Unrelated Business Income Tax Returns, 1999 Table 3.--Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Unrelated Business Taxable Income (Less Deficit), Unrelated Business Taxable Income, and Total Tax, by Size of Unrelated Business Taxable Income or Deficit, Tax Year 1999 [All figures are estimates based on samples--money amounts are in thousands of dollars] Gross Number Size of unrelated business taxable income or deficit of returns unrelated business income (UBI) (1) (2) Number of returns (3) Total deductions 1,2 Unrelated business taxable income (less deficit) Number 3 Total tax Number 4 Amount (4) 6,834,850 3,322,434 1,568,081 36,950 225,681 591,259 444,732 140,238 505,475 of returns (5) 33,532 12,814 -4,989 9,319 5,190 914 126 180 Amount (6) 887,284 -597,637 -2,137 38,878 158,624 191,294 85,715 1,008,273 of returns (7) 20,438 39 166 4,731 9,167 5,123 907 125 179 Amount (8) 421,746 578 986 392 6,511 29,786 61,558 28,593 293,342 Total................................................................................................................ 41,927 42,151 7,722,135 Deficit...................................................................................... 2,724,797 12,814 Zero ...................................................................................... 1,568,081 8,619 $1 under $1,000...................................................................................... 4,989 39,087 $1,000 under $10,000...................................................................................... 9,319 264,559 $10,000 under $100,000...................................................................................... 5,190 749,883 $100,000 under $500,000...................................................................................... 914 636,026 $1,000,000 or more...................................................................................... 180 1,513,748 5 12,814 8,619 4,989 9,128 5,185 890 178 $500,000 under $1,000,000...................................................................................... 124 126 225,953 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 $2.2 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ The term "unrelated business taxable income (less deficit)" replaces the term "net income (less deficit)," which was used in previously published SOI Bulletin articles on unrelated business income tax returns. Only the terminology has changed; in the case of either of the two terms used to cite data in this and all previous years' articles, the source of the data is the Form 990-T line item named "Unrelated business taxable income." See footnote 3 in this article for an explanation of this change. 4 Total tax is the regular unrelated business income tax after reduction by any tax credits (foreign tax credit, general business credit, prior-year minimum tax credit, and other allowable credits), plus any taxes from recapture of certain prior-year credits, the "alternative minimum tax," and the "proxy" tax on nondeductible lobbying and political expenditures. 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 $3.4 million. 5 Includes "breakeven" returns with equal amounts of gross unrelated business income and total deductions. NOTE: Detail may not add to totals because of rounding. 161 Unrelated Business Income Tax Returns, 1999 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 1999 [All figures are estimates based on samples--money amounts are in thousands of dollars] Gross Type of entity and size of gross unrelated business income (UBI) Number of returns unrelated business income (UBI) (1) ALL ENTITIES Total................................................................................................................ 20,718 3,429,257 5 Total deductions Number of returns (3) Amount (4) 1,2 Total Unrelated business taxable income 3 tax Number of returns (6) 4 Amount (7) (2) (5) 20,494 9,876 7,202 2,520 449 363 85 1,944,335 15,497 131,063 403,613 216,076 449,265 728,820 1,484,921 20,351 108,587 177,701 97,017 332,186 749,080 20,233 9,749 7,119 2,478 442 359 85 420,182 3,543 20,353 49,652 29,733 105,994 210,906 $1,000 under $10,001...................................................................................... 35,848 10,067 5 $10,001 under $100,000 ...................................................................................... 7,207 239,650 $100,000 under $500,000...................................................................................... 2,543 581,314 $500,000 under $1,000,000...................................................................................... 451 313,093 $1,000,000 under $5,000,000...................................................................................... 365 781,451 $5,000,000 or more...................................................................................... 1,477,900 85 TAX-EXEMPT CORPORATIONS Total................................................................................................................ 13,395 2,251,682 5 13,226 3,829 6,357 2,306 394 287 54 1,618,352 7,346 125,736 397,085 209,961 428,256 449,969 633,330 11,064 87,779 130,297 64,165 182,958 157,067 13,215 3,955 6,292 2,245 387 282 54 181,082 1,695 13,623 33,039 18,955 60,210 53,561 $1,000 under $10,001 ......................................................................................18,410 3,988 5 $10,001 under $100,000 ...................................................................................... 6,362 213,515 $100,000 under $500,000...................................................................................... 2,308 527,381 $500,000 under $1,000,000...................................................................................... 396 274,126 $1,000,000 under $5,000,000...................................................................................... 288 611,214 $5,000,000 or more...................................................................................... 607,036 54 TAX-EXEMPT TRUSTS 162 Total................................................................................................................ 7,322 1,177,574 $1,000 under $10,001 ......................................................................................17,439 6,079 5 $10,001 under $100,000 ...................................................................................... 845 26,135 $100,000 under $500,000...................................................................................... 236 53,933 $500,000 under $1,000,000...................................................................................... 55 38,967 $1,000,000 under $5,000,000...................................................................................... 77 170,236 $5,000,000 or more...................................................................................... 870,864 31 5 7,268 6,047 845 214 55 76 31 325,984 8,151 5,328 6,529 6,115 21,009 278,852 851,591 9,287 20,807 47,404 32,852 149,228 592,013 7,018 5,794 828 234 55 77 31 239,100 1,848 6,730 16,613 10,779 45,784 157,345 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 unrelated business taxable income, cost of sales and services was $810.6 million, of which $805.8 million were attributable to tax-exempt corporations. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ The term "unrelated business taxable income" replaces the term "net income (taxable profit)," which was used in previously published SOI Bulletin articles on unrelated business income tax returns. Only the terminology has changed; in the case of either of the two terms used to cite data in this and all previous years' articles, the source of the data is the Form 990-T line item named "Unrelated business taxable income." See footnote 3 in this article for an explanation of this change. 4 Total tax is the regular unrelated business income tax after reduction by any tax credits (foreign tax credit, general business credit, prior-year minimum tax credit, and other allowable credits), plus any taxes from recapture of certain prior-year credits, the "alternative minimum tax," and the "proxy" tax on nondeductible lobbying and political expenditures. The proxy tax was reported on Form 990-T and was included in total tax; however, it had no connection to the tax on unrelated business income or an organization's involvement in unrelated business activities. For exempt organizations reporting positive unrelated business taxable income, total proxy tax was $2.4 million, all of which was attributable to tax-exempt corporations. 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 (only a "partial" return was required) and all other Form 990-T filers (a more detailed "complete" return was required). 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. 5 162 Unrelated Business Income Tax Returns, 1999 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 1999 [All figures are estimates based on samples--money amounts are in thousands of dollars] Gross Number Primary unrelated business activity or industrial grouping of returns unrelated business income (UBI) (1) (2) Number of returns (3) Total deductions 1,2 Unrelated business taxable income (less deficit) Number 3 Total Unrelated business taxable income 3 tax Number of returns (8) 20,438 178 142 *8 *57 132 79 496 *48 558 10,261 1,638 2,770 333 5,520 1,998 246 1,752 2,002 26 232 49 477 2,005 1,088 319 120 161 5 Amount (4) 6,834,850 of returns (5) 33,532 4 Amount (6) 887,284 -1,556 10,031 4,332 *2,474 -2,217 4,481 -24,754 -59 3,952 985,148 162,493 600,352 18,524 203,779 18,956 1,553 17,403 -13,406 36,492 -6,455 -13,747 -98,854 -1,510 -22,510 -2,173 3,937 4,722 Amount (9) 421,746 522 2,987 *2,020 *858 3,386 1,343 4,381 *502 11,178 291,225 51,951 172,088 8,794 58,393 22,239 1,804 20,435 28,584 12,637 3,357 1,605 10,431 8,163 9,333 2,481 2,900 1,613 (7) 1,484,921 1,995 10,045 6,197 *2,492 10,615 4,926 16,831 1,980 36,174 1,032,910 171,007 609,698 33,282 218,922 80,525 7,576 72,949 93,573 36,518 11,929 5,050 34,240 39,160 35,799 8,983 9,367 5,612 All activities and groupings...................................................................................... 42,151 7,722,135 41,927 Agriculture, forestry, hunting, and fishing.......................................................................................................................... 333 21,618 333 23,174 238 Mining.......................................................................................................................... 186 19,460 186 Utilities.......................................................................................................................... 53 29,563 53 Construction.......................................................................................................................... 65 6,255 65 Manufacturing.......................................................................................................................... 291 53,351 287 Retail trade.......................................................................................................................... 1,487 357,745 1,454 Information.......................................................................................................................... 2,840 428,752 2,840 Unrelated debt-financed activities, other than rental of real estate......................................................... 1,869 257,381 Investment activities of Code section 501(c)(7), (9), and (17) organizations......................................................... 3,708 3,742 1,227,957 Passive income activities with controlled organizations......................................................... 459 136,466 Other finance and insurance ......................................................... 8,336 544,050 Real estate and rental and leasing, total......................................................... 4,882 618,548 Rental of personal property ......................................................... 559 59,713 458 8,273 4,872 559 117,942 340,270 599,592 58,160 541,432 1,471,810 3,987 194,260 155,295 1,063,152 592,483 442,921 392 6,787 3,941 416 3,524 4,539 29 524 168 1,045 3,452 2,664 504 196 219 627,605 2,980 1,804 94,887 1,774 9,428 25,231 3,782 55,568 382,499 424,800 177 43 *59 208 122 1,243 2,125 Wholesale trade.......................................................................................................................... 3,921 124 8,403 124 Transportation and warehousing.......................................................................................................................... 102 110 7,253 110 7,312 Finance and insurance, total.......................................................................................................................... 11,934 14,406 2,165,854 14,242 1,180,705 Other real estate and rental and leasing......................................................... 4,314 4,324 558,834 Professional, scientific, and technical services......................................................... 6,790 1,458,404 6,788 Management of companies and enterprises......................................................... 32 40,478 Administrative and support and waste management and remediation services......................................................... 689 187,806 Educational services......................................................... 223 141,548 Healthcare and social assistance......................................................... 1,223 964,298 Arts, entertainment, and recreation......................................................... 4,250 590,973 Accommodation and food services......................................................... 3,113 420,411 689 223 1,212 4,250 3,113 32 Other services.......................................................................................................................... 111,191 575 109,018 574 Exploited exempt activities.......................................................................................................................... 257 75,869 257 71,932 Not allocable.......................................................................................................................... 222 16,528 222 11,805 * Estimate should be used with caution because of the small number of sample returns on which it is based. ¹ Excludes cost of sales and services, which was subtracted from gross receipts from sales and services in computing gross profit from sales and services. Gross profit from sales and services was a component of gross unrelated business income (UBI). Cost of sales and services can include amounts attributable to depreciation, salaries and wages, and certain other deductible items. For all exempt organizations reporting gross UBI, cost of sales and services was $2.2 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ The terms "unrelated business taxable income (less deficit)" and "unrelated business taxable income" replace the terms "net income (less deficit)" and "net income (taxable profit)," respectively, which were used in previously published SOI Bulletin articles on unrelated business income tax returns. Only the terminology has changed; in the case of any of the four terms used to cite data in this and all previous years' articles, the source of the data is the Form 990-T line item named "Unrelated business taxable income." See footnote 3 in this article for an explanation of this change. 4 Excludes returns with unrelated business taxable income (less deficit) equal to zero. 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 any taxes from recapture of certain prior-year credits, the "alternative minimum tax," and the "proxy" tax on nondeductible lobbying and political expenditures. 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 $3.4 million. NOTE: Detail may not add to totals because of rounding. 163 Unrelated Business Income Tax Returns, 1999 Table 6.--Sources of Gross Unrelated Business Income (UBI), by Size of Gross UBI, Tax Year 1999 [All figures are estimates based on samples--money amounts are in thousands of dollars] Sources of gross unrelated business income (UBI) ¹ Gross unrelated Size of gross unrelated business income (UBI) Number of returns (1) Total...................................................................................... 42,151 2 2,3 Gross profit (less loss) from sales and services Number Number Amount of returns (4) 3,439,282 10,611 3,428,671 258,768 706,879 391,122 936,475 1,135,426 (5) Capital gain net income business income (UBI) Amount of returns Amount (2) 7,722,135 (3) 15,874 (6) 680,956 629 680,327 21,524 30,730 29,539 125,820 472,714 1,043 255 788 411 187 66 88 37 $1,000 under $10,001 .......................................................................................................................... 17,781 69,478 2,785 $10,001 or more, total .......................................................................................................................... 24,369 7,652,656 13,089 $10,001 under $100,000.......................................................................................................................... 16,216 591,297 7,934 $100,000 under $500,000.......................................................................................................................... 5,925 1,320,828 3,733 $500,000 under $1,000,000.......................................................................................................................... 1,080 750,986 694 $1,000,000 under $5,000,000.......................................................................................................................... 922 1,936,990 589 $5,000,000 or more..........................................................................................................................138 226 3,052,554 Sources of gross unrelated business income (UBI) ¹--Continued Net capital loss Size of gross unrelated business income (UBI) Number of returns (7) (8) 263 Amount (trusts only) Net gain (less loss), sales of noncapital assets Number of returns (9) 462 (10) 3,409 *40 3,369 877 -823 -58 400 2,973 Amount 4 Income (less loss) from partnerships and S corporations Number of returns (11) 9,328 7,261 2,067 1,377 360 100 168 62 (12) 316,092 21,879 294,213 26,557 40,411 18,947 87,870 120,429 Amount 164 Total...................................................................................... 67 2 2,3 $1,000 under $10,001 .......................................................................................................................... --*180 $10,001 or more, total .......................................................................................................................... 67 263 282 $10,001 under $100,000.......................................................................................................................... *34 *71 165 $100,000 under $500,000.......................................................................................................................... 22 162 73 $500,000 under $1,000,000.......................................................................................................................... 5 13 19 $1,000,000 under $5,000,000.......................................................................................................................... 6 18 15 $5,000,000 or more.......................................................................................................................... 10 --- Sources of gross unrelated business income (UBI) ¹-- Continued Rental Size of gross unrelated business income (UBI) Number of returns (13) Total...................................................................................... 4,855 2 2,3 Unrelated debt5 Investment income (less loss) Number 6 income financed income Number Amount (14) 197,601 of returns (15) 3,225 (16) 339,503 2,150 337,353 43,265 82,910 31,570 108,614 70,994 Amount of returns (17) 6,056 2,435 3,622 2,239 1,045 196 110 32 Amount (18) 841,455 8,415 833,040 38,617 71,961 53,472 130,066 538,925 $1,000 under $10,001 .......................................................................................................................... 1,959 8,352 816 $10,001 or more, total .......................................................................................................................... 2,897 189,249 2,408 $10,001 under $100,000.......................................................................................................................... 2,088 44,210 1,577 $100,000 under $500,000.......................................................................................................................... 594 51,996 614 $500,000 under $1,000,000.......................................................................................................................... 103 22,058 81 $1,000,000 under $5,000,000.......................................................................................................................... 93 43,419 110 $5,000,000 or more.......................................................................................................................... 26 18 27,567 Footnotes at end of table. 164 Unrelated Business Income Tax Returns, 1999 Table 6.--Sources of Gross Unrelated Business Income (UBI), by Size of Gross UBI, Tax Year 1999 --Continued [All figures are estimates based on samples--money amounts are in thousands of dollars] Sources of gross unrelated business income (UBI) ¹--Continued Income from Size of gross unrelated business income (UBI) Number of returns (19) 2 Exploited exempt activity 7 Advertising income Other income (less loss) controlled organizations income, except advertising Number Amount of returns (20) (21) 803 (22) 124,623 Amount Number of returns (23) 8,020 2,821 5,199 3,225 1,402 269 239 64 (24) 1,268,401 12,606 1,255,795 95,068 213,446 139,158 289,335 518,788 Amount Number of returns (25) 5,067 948 4,119 2,657 1,046 191 190 35 (26) 401,685 2,785 398,900 44,522 77,546 40,432 134,923 101,476 Amount Total...................................................................................... 109,392 1,336 2,3 $1,000 under $10,001 .......................................................................................................................... 265 1,621 *73 *391 $10,001 or more, total .......................................................................................................................... 1,071 107,771 730 124,232 $10,001 under $100,000.......................................................................................................................... 656 9,908 368 8,053 $100,000 under $500,000.......................................................................................................................... 273 20,069 224 25,866 $500,000 under $1,000,000.......................................................................................................................... 49 6,200 64 18,559 $1,000,000 under $5,000,000.......................................................................................................................... 73 32,332 58 47,754 20 39,262 17 23,999 $5,000,000 or more.......................................................................................................................... *Estimate should be used with caution because of the small number of sample returns on which it is based. ¹ For definitions of the sources of gross unrelated business income, see the Explanation of Selected Terms section of this article. ² The gross unrelated business income (UBI) brackets of "$1,000 under $10,001" and "$10,001 or more, total" reflect the different filing requirements for organizations with gross UBI of $10,000 or less (only a "partial" return was required) and all other Form 990-T filers (a more detailed "complete" return was required). Organizations with gross UBI below $1,000 were not required to file Form 990-T. ³ All organizations were required to report each income item, as shown in columns 3 through 26. However, only organizations with gross UBI over $10,000 were required to report each deduction shown in columns 14 through 45, 48, 49, and 54 through 59 of Table 7. Income totals for these larger organizations with gross UBI over $10,000 are shown in order to facilitate comparison with Table 7. 4 5 6 7 Property other than capital assets generally included property of a business nature, in contrast to personal and investment property, which were capital assets. Income from real property and personal property leased with real property. Reported by Internal Revenue Code section 501(c)(7), (9), and (17) organizations only. Annuities, interest, rents, and royalties. NOTE: Detail may not add to totals because of rounding. 165 Unrelated Business Income Tax Returns, 1999 Table 7.--Types of Deductions, by Size of Gross Unrelated Business Income (UBI), Tax Year 1999 [All figures are estimates based on samples--money amounts are in thousands of dollars] All organizations Total number of returns Total 1,2 deductions Number of returns (1) Total......................................................... 42,151 (2) 41,927 (3) 6,834,850 Organizations with gross unrelated business income (UBI) of $1,000 under $10,001 ³ Net operating loss deduction Number of Amount returns (5) 68,064 (6) 1,241 1,241 -----(7) 2,194 2,194 ------ Size of gross unrelated business income (UBI) Amount Total 2,4 deductions Number of Amount returns (4) 17,591 Specific deduction Number of Amount returns (8) 11,779 11,779 -----(9) 11,036 11,036 ------ $1,000 under $10,001 ³.......................................................................................................................... 17,781 17,591 68,064 17,591 68,064 $10,001 under $100,000 ³.......................................................................................................................... 16,216 16,211 583,126 --$100,000 under $500,000.......................................................................................................................... 5,925 5,901 1,292,024 --$500,000 under $1,000,000.......................................................................................................................... 1,080 1,078 714,819 --$1,000,000 under $5,000,000.......................................................................................................................... 922 920 1,748,789 --$5,000,000 or more.......................................................................................................................... 226 226 2,428,028 --- Organizations with gross unrelated business income (UBI) of $10,001 or more ³ Deductions directly connected with UBI Total Size of gross unrelated business income (UBI) Number of returns (10) Total......................................................... 24,336 Amount (11) 6,766,786 Number of returns (12) 22,570 Amount (13) 5,982,298 Number of returns (14) 1,353 -981 262 44 57 10 Amount (15) 111,699 -25,096 31,041 11,999 33,655 9,909 deductions2,5 Total Allocable to rental income 6 Number of returns (16) 2,195 -1,444 548 75 103 24 Amount (17) 304,983 -45,903 75,102 26,340 90,869 66,769 Allocable to unrelated debt-financed income6 Allocable to investment income 6,7 Number of returns (18) 1,152 -573 405 94 63 17 $1,000 under $10,001 ³.......................................................................................................................... ----$10,001 under $100,000 ³.......................................................................................................................... 16,211 583,126 14,789 548,234 $100,000 under $500,000.......................................................................................................................... 5,901 1,292,024 5,654 1,211,616 $500,000 under $1,000,000.......................................................................................................................... 1,078 714,819 1,032 643,465 $1,000,000 under $5,000,000.......................................................................................................................... 920 1,748,789 877 1,620,334 $5,000,000 or more.......................................................................................................................... 226 2,428,028 218 1,958,648 166 Allocable to Size of gross unrelated business income (UBI) investment 6,7 income --Continued Amount (19) Organizations with gross unrelated business income (UBI) of $10,001 or more ³--Continued Deductions directly connected with UBI--Continued Allocable to income from controlled organizations 6 Number of returns (20) Allocable to exploited exempt activity income, 6 except advertising Number of returns (22) Direct advertising 6 costs Number of returns (24) 4,795 -2,949 1,304 259 221 62 Compensation of officers, directors, and trustees Number of returns (26) 1,964 -1,013 698 123 102 28 Amount (21) Amount (23) Amount (25) 907,964 -75,641 158,000 98,700 202,814 372,810 Amount (27) 43,388 -9,596 16,513 4,822 6,589 5,868 Total......................................................... 55,355 435 60,052 653 110,689 $1,000 under $10,001 ³.......................................................................................................................... -----$10,001 under $100,000 ³.......................................................................................................................... 5,405 214 4,524 317 6,309 $100,000 under $500,000.......................................................................................................................... 4,685 149 12,089 207 23,490 $500,000 under $1,000,000.......................................................................................................................... 16,911 2,757 23 3,865 61 $1,000,000 under $5,000,000.......................................................................................................................... 6,806 37 21,944 54 45,593 $5,000,000 or more.......................................................................................................................... 35,702 12 17,631 14 18,386 Organizations with gross unrelated business income (UBI) of $10,001 or more ³--Continued Deductions directly connected with UBI--Continued Size of gross unrelated business income (UBI) Salaries and wages Number of returns (28) Total...................................................................................... 10,806 (29) 1,267,314 Repairs and maintenance Number of returns (30) 7,346 -4,208 2,285 413 357 83 (31) 84,286 -12,567 28,990 12,699 17,389 12,640 Bad debts Number of returns (32) 760 -207 325 84 105 39 (33) 38,178 -702 1,399 1,980 11,987 22,110 Number of returns (34) 3,169 -1,729 1,047 180 174 39 (35) 84,752 -14,157 17,005 7,623 22,290 23,676 Interest Amount Amount Amount Amount $1,000 under $10,001 ³...................................................................................... --$10,001 under $100,000 ³...................................................................................... 6,177 114,864 $100,000 under $500,000...................................................................................... 3,367 334,612 $500,000 under $1,000,000...................................................................................... 606 160,621 $1,000,000 under $5,000,000...................................................................................... 537 352,218 $5,000,000 or more...................................................................................... 118 304,999 166 Footnotes at end of table. Unrelated Business Income Tax Returns, 1999 Table 7.--Types of Deductions, by Size of Gross Unrelated Business Income (UBI), Tax Year 1999 --Continued [All figures are estimates based on samples--money amounts are in thousands of dollars] Organizations with gross unrelated business income (UBI) of $10,001 or more ³--Continued Deductions directly connected with UBI--Continued Size of gross unrelated business income (UBI) Taxes and licenses paid deduction Number of returns (36) Total......................................................... 11,198 Amount (37) 169,904 Number of returns (38) 7,743 Amount (39) 177,028 Number of returns (40) 65 -*45 *14 Amount (41) 2,001 -*451 *231 *1,320 Contributions Depreciation Depletion to deferred compensation plans Number of returns (42) 1,030 -545 320 80 70 14 Amount (43) 10,190 -1,323 1,538 936 2,783 3,610 $1,000 under $10,001 ³.......................................................................................................................... ----$10,001 under $100,000 ³.......................................................................................................................... 6,934 25,450 4,482 19,270 $100,000 under $500,000.......................................................................................................................... 3,270 70,219 2,314 51,277 $500,000 under $1,000,000.......................................................................................................................... 491 23,884 436 24,021 $1,000,000 under $5,000,000.......................................................................................................................... 403 30,045 415 46,977 $5,000,000 or more.......................................................................................................................... 100 20,306 96 35,483 } *5 { Organizations with gross unrelated business income (UBI) of $10,001 or more ³--Continued Deductions directly connected with UBI--Continued Deductions not Contributions Size of gross unrelated business income (UBI) to employee benefit programs Number of returns (44) Total......................................................... 4,913 Net operating loss deduction Total Amount (45) 158,160 Number of returns (46) 3,272 Amount (47) 150,336 Number of returns (48) 14,873 -9,154 4,120 774 659 166 Amount (49) 2,246,020 -161,599 331,698 208,061 629,881 914,782 Number of returns (50) 13,503 -9,080 3,219 595 485 124 Amount (51) 784,487 -34,891 80,408 71,354 128,455 469,380 Other deductions directly connected with UBI $1,000 under $10,001 ³.......................................................................................................................... ----$10,001 under $100,000 ³.......................................................................................................................... 2,248 11,566 2,035 13,813 $100,000 under $500,000.......................................................................................................................... 1,760 26,214 822 27,515 $500,000 under $1,000,000.......................................................................................................................... 414 18,232 187 19,849 $1,000,000 under $5,000,000.......................................................................................................................... 399 52,649 172 45,234 $5,000,000 or more.......................................................................................................................... 93 49,499 55 43,925 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) Contributions Number of returns (54) 1,677 Set-asides Number of returns (56) 460 -248 115 50 34 13 7 Amount (53) Amount (55) 40,104 Amount (57) 447,373 -4,875 23,130 26,503 51,841 341,025 Excess exempt expenses Number of Amount returns (58) 2,452 -1,367 722 160 155 48 (59) 286,235 -18,098 47,682 31,865 70,563 118,027 Total................................................................................................................ 11,184 10,775 $1,000 under $10,001 ³.......................................................................................................................... ----$10,001 under $100,000 ³..........................................................................................................................4,539 7,711 7,380 1,066 $100,000 under $500,000.......................................................................................................................... 7,078 2,586 2,518 403 $500,000 under $1,000,000.......................................................................................................................... 449 442 86 12,544 $1,000,000 under $5,000,000.......................................................................................................................... 355 352 88 5,698 $5,000,000 or more.......................................................................................................................... 83 83 34 10,245 * Estimate should be used with caution because of the small number of sample returns on which it is based. ¹ Excludes cost of sales and services, which was subtracted from gross receipts from sales and services in computing gross profit from sales and services. Gross profit from sales and services was a component of gross unrelated business income (UBI). Cost of sales and services can include amounts attributable to depreciation, salaries and wages, and certain other deductible items. For all exempt organizations reporting gross UBI, cost of sales and services was $2.2 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on supporting schedules. ³ Organizations with gross UBI between $1,000 (the filing threshold) and $10,000 were required to report only totals for expenses and deductions (except for the specific deduction and net operating loss deduction, which all organizations reported separately). Organizations with gross UBI over $10,000 were required to report each expense and deduction item separately, as shown in columns 14 through 45, 48, 49, and 54 through 59. 4 Excludes $37.1 million of cost of sales and services reported by organizations with gross UBI of $10,000 or less. See footnote 1 for explanation. Excludes $2.2 billion of cost of sales and services reported by organizations with gross UBI over $10,000. See footnote 1 for explanation. This deduction was required to be reported as a lump-sum total only and may have included component deductions that were of the same type shown elsewhere in this table. For example, if deductions "allocable to rental income" included depreciation, then that amount of depreciation would not be included in the separately reported item, "depreciation." Therefore, the total amount shown for some of the separately reported deductions may be understated. 7 Reported by Internal Revenue Code section 501(c)(7), (9), and (17) organizations only. NOTE: Detail may not add to totals because of rounding. 6 5 167