990-T 1994[488]

Unrelated Business Income of Nonprofit Organizations, 1994 UnrelatedBusinessIncomeofNonprofit Organizations,1994 by Margaret Riley Figure A Selected Financial Data from Exempt Organization Business Income Tax Returns, Tax Years 1993 and 1994 [Money amounts are in thousands of dollars] T ax-exempt “nonprofit” organizations reported $5.4 billion of gross “unrelated business income” (UBI) on Form 990-T, Exempt Organization Business Income Tax Return, for Tax Year 1994 [1]. After reducing gross UBI by $6.5 billion of allowable deductions, the resulting overall net deficit was $1.1 billion. However, 52 percent of these 35,657 organizations, which are normally exempt from income tax under the Internal Revenue Code, reported an aggregate net taxable profit of $643.0 million from unrelated business activities. After adjustments for other taxes and certain credits were made to the $191.5 million of reported unrelated business income tax, nonprofit organizations incurred a total tax liability of $195.2 million [2]. In general, income of a nonprofit organization is subject to the “unrelated business income tax” if it is produced from activities that are regularly carried on and are not substantially related to the organization’ taxs exempt purpose. There are certain exclusions to this income taxation; some examples are engaging in business activities in which substantially all of the work is performed by volunteer labor; selling merchandise that the organization received as a gift or contribution; and operating certain bingo games, as specified in the Code. Item 1993 1994 Percentage change (1) (2) (3) Number of returns, total.................................................................................................. 32,638 35,657 +9.2 With net income (taxable profit).................................................................................................. 15,067 18,588 +23.4 Without net income (taxable profit).................................................................................................. 17,571 17,070 -2.9 Gross unrelated business income.................................................................................................. 4,694,181 5,379,838 +14.6 Total deductions.................................................................................................. 5,741,420 6,506,838 +13.3 Net income (less deficit).................................................................................................. -1,047,239 -1,127,001 +7.6 Net income (taxable profit).................................................................................................. 603,593 642,953 +6.5 Deficit.................................................................................................. +7.2 -1,650,831 -1,769,954 Unrelated business income tax.................................................................................................. 180,046 191,492 +6.4 Total income tax.................................................................................................. 181,437 195,191 +7.6 NOTE: Detail may not add to totals because of rounding. Financial Highlights As shown in Figure A, gross unrelated business income increased by 15 percent between 1993 and 1994. Total deductions increased by 13 percent and the amount of aggregate net loss increased by 8 percent. The number of organizations reporting taxable profit was 23 percent higher for 1994, but the total dollar amount of the profit rose by only 7 percent. (See Table 4 at the end of this data release for information on organizations reporting taxable profit.) Total income tax reported on Form 990-T was 8 percent higher for 1994, a much lower growth rate than the 37-percent increase between 1992 and 1993. The large increase for 1993 resulted mainly from new tax provisions limiting deductions for lobbying expenses, the imposition of the “proxy tax” on nondeductible lobbying expenditures, and increases in income tax rates, especially those applicable to nonprofit trusts filing Form 990-T [3]. For 1994, tax rates remained unchanged for nonprofit corporations and were lowered slightly for nonprofit trusts. The largest portion of aggregate gross income reported This article was written by Margaret Riley, a statistician with the Special Studies Special Projects Section, under the direction of Michael Alexander, Chief. on Form 990-T was $2.7 billion of gross profit (less loss) from sales and services, which accounted for one-half of the total. (See Table 6 for the components of gross UBI, which are defined in the Explanation of Selected Terms section of this data release.) Most of the income derived from this component is from for-profit commercial activities carried on by the nonprofit organizations. Examples of some of the types of business activities that, if determined to be unrelated to the nonprofit organization’ taxs exempt mission, would generate gross profit (less loss) from sales and services are data processing services, sales of insurance to nonmembers, sales of food and beverages to nonmembers, operation of day care centers, operation of golf courses for nonmembers, operation of fitness/ recreation centers, operation of parking lots, medical laboratory services, land surveying/testing services, referral services, and various amusement and recreation services. Gross profit from sales and services increased 27 percent between 1993 and 1994. It has been gaining in importance as a source of income for nonprofits over the past few years. For the 1990 to 1994 period, this component increased gradually from 41 percent to 51 percent of total unrelated business income reported by organizations with gross UBI above $10,000. (Prior to 1992, organizations with gross UBI of $10,000 or less were not required to report each income item separately; only a total of gross UBI was reported.) Three-quarters of the $2.7 billion total of gross profit (less loss) from sales and services reported for 1994 by all nonprofit organizations can be credited to charitable organizations tax-exempt under Internal Rev111 Unrelated Business Income of Nonprofit Organizations, 1994 112 enue Code section 501(c)(3) [4]. (See the Appendix to this data release for a description of the various types of tax-exempt organizations, which are listed by Code section.) Their $2.0 billion of revenue from this component accounted for 65 percent of their gross UBI from all sources. The second-largest component of gross UBI for 1994 was advertising income. This item comprised 18 percent, or nearly $1 billion, of gross unrelated business income. Organizations tax-exempt under sections 501(c)(3) and 501(c)(6) (business leagues, chambers of commerce, and real estate boards) together accounted for 84 percent of all reported advertising income. Typically, this is a major source of unrelated business income for the 501(c)(6) organizations; for 1994, it was 56 percent of their gross UBI. By contrast, advertising income was only 13 percent of gross UBI reported by the 501(c)(3) charities. The next section contains a special analysis of unrelated business income, Grossprofitfromsales based on a subsample of andservicesincreased tax returns from the Form 990-T SOI study and a 27percentbetween counterpart subsample of 1993 and 1994. information returns from the 1994 Form 990 (Return of Organization Exempt From Income Tax) SOI study, with both subsamples incorporating the same set of organizations [5]. While the Form 990-T sample weights were used to produce the statistics presented elsewhere in this data release, the Form 990 sample weights were used in the special analysis because any tax return that was not initially selected for the Form 990-T sample, based on established income levels and sampling rates, ultimately was included if an information return filed by the same organization was present in the Form 990 sample. In effect, the Form 990 sample was the catalyst for developing the Form 990-T subsample, from which data were used to supplement the information reported by the same organization on its Form 990. The return matching process employed to develop the two subsamples is explained in more detail in the following section. Measuring Nonprofit Involvement in Unrelated Business Activities from Matched Forms 990 and 990-T The 1994 Statistics of Income (SOI) study samples of Form 990 and Form 990-T incorporated a special “integrated” sample matching program to gather information 112 on “related” (tax-exempt) and “unrelated” (taxable) income and expenses for organizations that filed both forms. Under the matching program, the Form 990-T sample included unrelated business income tax returns filed by any organizations whose Form 990 information returns were selected for either of two other SOI samples, one that included charities tax-exempt under section 501(c)(3), and a separate sample that included organizations tax-exempt under sections 501(c)(4) through 501(c)(9) [6, 7]. Returns selected for the two Form 990 samples were a determining factor in the selection of returns that were included in the integrated portion of the Form 990-T sample. The Form 990-T sample was designed so that if a return initially was not selected “in its own right” based on independent Form 990-T sampling criteria, it was subjected to further sampling based on a Forms 990/990-T matching process. Under this process, the Employer Identification Numbers (EIN’ of Form 990-T returns s) that initially were not selected for the sample were compared to the EIN’ of returns selected for the two Form s 990 SOI samples. When a match occurred, the matched Form 990-T was added to the independently selected Form 990-T sample. These specially matched returns, along with the independently selected Forms 990-T that also had counterparts in the Form 990 samples, formed the “integrated” portion of the Form 990-T sample. This integrated portion became the Form 990-T subsample used for the special analysis of nonprofit involvement in unrelated business activities. Of the total 6,838 records in the Form 990-T sample, there were 4,472 that matched records in the two Form 990 samples, based on the EIN. Half of these Forms 990-T were not selected initially but became part of the sample because they subsequently matched a selected Form 990. Applying Form 990 sample weights to the matched records produced an estimated population of 20,875 organizations for analysis, as shown in Figure B [8]. To clarify, this population is estimated based on Form 990 and Form 990-T records in the SOI samples that had matching EIN’ it is s; not the estimated total population of section 501(c)(3) through 501(c)(9) organizations filing Forms 990-T. The estimated total number of Forms 990-T filed for Tax Year 1994 by organizations in each of these Code section groupings is shown in Table 1 at the end of this data release [9]. The matched records provide the means for consistency in analyzing exempt-function and nonexemptfunction income of organizations that are involved in unrelated business activities. The 20,875 organizations for which statistics are Unrelated Business Income of Nonprofit Organizations, 1994 Figure B Forms 990 and 990-T Matched Returns: Percentage of Returns Filed, by Selected Internal Revenue Code Section and the Proportion of Total Gross Receipts (TGR) Attributable to Unrelated Business Gross Receipts (UBGR), Tax Year 1994 Proportion of total gross receipts attributable to unrelated business gross receipts ¹ Internal Revenue Code section ² Number of matched returns Less than 1 percent 1 percent under 5 percent 5 percent under 10 percent 10 percent under 25 percent 25 percent under 50 percent 50 percent under 75 percent 75 percent or more Over Total 100 percent ³ Percentage of returns filed in each proportion category (1) (2) (3) 29.8 33.4 13.4 11.5 31.6 33.9 11.7 51.1 (4) 16.2 10.3 9.9 12.6 21.4 22.1 14.7 3.3 (5) 16.1 9.7 7.5 15.9 23.5 20.1 12.9 3.9 (6) 8.3 3.1 6.9 34.3 9.7 3.4 20.6 3.0 (7) 3.4 3.8 1.7 8.7 3.8 0.3 13.2 0.5 (8) 7.2 8.0 54.6 2.6 2.1 3.1 1.8 2.5 (9) 1.1 1.9 6.5 -0.4 -** ** Total.................................................................................... 20,875 19.0 501(c)(3)............................................................................. 6,182 31.8 (4)............................................................................. 1,205 6.1 (5)............................................................................. 1,775 14.4 (6)............................................................................. 5,374 7.9 (7)............................................................................. 5,115 17.1 (8)............................................................................. 652 25.2 (9)............................................................................. 572 35.7 **Data deleted to avoid disclosure of information for specific taxpayers. ¹ Total income and unrelated business income were adjusted to reflect gross receipts from current tax year (1994) operations only and to make their components more analogous for comparison. See Figure C for an explanation of "total gross receipts" and "unrelated business gross receipts." ² See the Appendix to this data release for a description of the types of organizations by Internal Revenue Code section. ³ Includes 222 returns where the amount of adjusted unrelated business gross receipts reported on Form 990-T exceeded the amount of adjusted total gross receipts reported on Form 990. See text for a discussion of these returns. NOTE: Percentages may not add to 100 because of rounding. shown in Figure B represent Form 990 filers that reported unrelated business income on Form 990-T. These organizations accounted for 10 percent of the 209,086 population of Code section 501(c)(3) through 501(c)(9) organizations filing Form 990, based on the SOI Form 990 samples (excluding Form 990-EZ). Figure B illustrates, to a large degree, the extent to which the organizations selected for the matched Forms 990 and 990-T subsamples engaged in unrelated business activities. This is measured by the proportion of “total gross receipts” (TGR) that is derived from “unrelated business gross receipts” (UBGR). The amounts of total revenue from Form 990 and unrelated business income from Form 990-T were adjusted to make them more analogous for comparison and to include only those components that are considered to be current tax year (1994) gross receipts [10]. The formulas used to compute total gross receipts and unrelated business gross receipts are shown in Figure C. Overall, 19 percent of the matched Form 990 and Form 990-T filers reported gross receipts from unrelated business activities that were less than 1 percent of their total gross receipts; 65 percent of the organizations reported less than 10 percent of their TGR attributable to UBGR; and about 11 percent reported UBGR that was 50 percent or more of their TGR. However, observing the different groups of organizations categorized by Code section, the percentages of returns filed vary substantially within the Figure C Formulas Used to Compute Total Gross Receipts (TGR) and Unrelated Business Gross Receipts (UBGR) Shown in Figure B Form 990 Total Gross Receipts = Total revenue (Part I, line 12) + Rental expenses¹ (Part I, line 6b) + Direct expenses from special events, other than fundraising¹ (Part I, line 9b) + Cost of sales and services² (Part I, line 10b) - Contributions, gifts, and grants received (Part I, line 1d) Form 990-T Unrelated Business Gross Receipts = Gross unrelated business income (Part I, line 13A) + Cost of sales and services² (Part I, line 2) - Set-asides³ (Schedule G, column 4) ¹ On Form 990, these expenses were deducted from gross income prior to calculating "total revenue." ² On Forms 990 and 990-T, this expense was deducted from gross income prior to calculating "total revenue" and "gross unrelated business income." ³ On Form 990-T, "set-asides" were first included in total gross unrelated business income and then subtracted from the total as an expense in computing net income. Internal Revenue Code section 501(c)(7), (9), and (17) organizations were allowed to expense this amount because it was money set aside for tax-exempt purposes. Therefore, the set-aside amount was considered exempt-function income. For a definition of set-asides, see the Explanation of Selected Terms section of this data release. 113 Unrelated Business Income of Nonprofit Organizations, 1994 114 seven ranges of proportions shown in Figure B. A large majority, from 73 percent up to 90 percent, of each group of section 501(c)(3) charities, section 501(c)(7) social and recreational clubs, and section 501(c)(9) voluntary employee beneficiary associations reported gross receipts from unrelated business activities that were less than 10 percent of their gross receipts from all sources, related and unrelated, for 1994. Sixty-one percent of the section 501(c)(6) business leagues, chambers of commerce, and real estate boards and 52 percent of the 501(c)(8) fraternal beneficiary societies and organizations also reported less than 10 percent of total receipts from UBGR. About half of the section 501(c)(5) labor, agricultural, and horticultural organizations, and about one-third of the organizations exempt under sections 501(c)(6) and 501(c)(8) reported UBGR that was in the range of 10 percent under 50 percent of TGR. Between 7 percent and 27 percent of the returns filed by each of the remaining Code section groups of organizations fell into this range. Slightly more than half of the 1,205 section 501(c)(4) social welfare organizations in the matched return study reported that 75 percent or more of their TGR was generated from unrelated business activities. All but six of these section 501(c)(4) organizations reported gross receipts from sales and services as the sole source of their UBGR. Virtually all of them reported their primary business activity as “amusement and recreation services” [11]. A limited review of the returns in the matched sample revealed that, in some cases, not all of the unrelated income reported on Form 990-T had been included in the total income reported on the associated Form 990, which should have included all related and unrelated income. There were an estimated 222 returns where the income reported on the Form 990-T actually was higher than that reported on the Form 990. Included in this group were 116 returns filed by section 501(c)(3) organizations, 78 filed by section 501(c)(4) organizations, 24 filed by section 501(c)(6) organizations, and 4 filed by section 501(c)(8) and 501(c)(9) organizations, combined. These latter two categories are combined to avoid the possibility of disclosure of information for specific taxpayers. There may be additional cases in which the Form 990 fails to contain the full amount of unrelated income reported on the Form 990-T, but they cannot be identified as easily as the ones discussed here [12]. The majority of these 222 returns were filed by smaller organizations, in terms of their income and asset size (94 percent had total gross receipts less than $300,000 and 87 percent had total assets under $600,000). In all but three cases, the organization paid a preparer to complete its Form 990-T. Statistics on whether or not a paid preparer completed the associated Form 990 are not available, but it may be assumed that the same preparer completed both returns and perhaps failed to realize that unrelated (taxable) income should be included with related (tax-exempt) income on Form 990. It is important to note that the returns selected for SOI statistical studies are processed prior to audit procedures and taxpayer amendments; therefore, if any corrections were made to Forms 990 and 990-T as a result of these factors, they would not be represented in these statistics. It is possible that if undetected taxpayer reporting errors on either Form 990 or Form 990-T were identified and corrected, then the percentages shown in Figure B would be altered to some extent. If the matched returns where the unrelated income on Form 990-T was higher than total income on Form 990 are excluded from column (8) in Figure B, the resultAbouthalfofthesection ing proportions for the section 501(c)(3), 501(c)(4)socialwelfare 501(c)(4), and 501(c)(6) organizations would be 6.1 organizationsreported percent, 48.1 percent, and that75percentormore 1.7 percent, respectively. Revised percentages for oftheirtotalgross the section 501(c)(8) and receiptswasgenerated 501(c)(9) organizations are fromunrelatedbusiness not provided, once again for the reason of safeatvte. ciiis guarding taxpayer privacy. Data Sources and Limitations The statistics in this data release are based on samples of Tax Year 1994 Forms 990-T, Exempt Organization Business Income Tax Return, and Forms 990, Return of Organization Exempt From Income Tax. The Internal Revenue Service required organizations having accounting periods beginning in 1994 (and, therefore, ending between December 1994 and November 1995) to file 1994 Forms 990 and 990-T. Because the accounting periods of the organizations filing a 1994 return vary, the financial activities covered in this data release span the period January 1994 through November 1995 (although the majority of activities occurred during Calendar Year 1994). The tables at the end of this data release were produced from the Form 990-T sample and include most types of tax-exempt organizations. The data analyzed in the section titled Measuring Nonprofit Involvement in Unrelated Business Activities from Matched Forms 990 and 990-T (and presented in Figure B) were from matched 114 Unrelated Business Income of Nonprofit Organizations, 1994 Internal Revenue Code section 501(c)(3) through 501(c)(9) records only. As explained earlier, this matching procedure ensured that the Form 990-T sample included unrelated business income tax returns filed by any tax-exempt organizations whose information returns were selected for either of two Form 990 samples (one of section 501(c)(3) organizations and the other of section 501(c)(4) through 501(c)(9) organizations). For an explanation of the Form 990 samples, see the Data Sources and Limitations section of the article, “Charities and Other Tax-Exempt Organizations, 1994,” in this issue of the Statistics of Income Bulletin. The Form 990-T sample is described below. The population from which the 1994 Form 990-T sample was drawn consisted of Form 990-T records posted to the IRS Business Master File system during 1995 and 1996. The returns in the sample were stratified based on the size of gross unrelated business income (UBI). The sample of 6,838 returns was selected from a population of 36,046. After excluding returns that were selected for the sample but later rejected, the sample size was 6,791 and the estimated population size was 35,657. Rejected returns included those which had gross UBI below the $1,000 filing threshold, were filed only to claim a refund, or were filed for a part-year accounting period that began in a year other than 1994. (For example, a final return filed for the short period of January to June 1995 may have been computer-selected for the 1994 sample based on the criteria of having an ending accounting period that fit into the December 1994 to November 1995 range for a Tax Year 1994 return, but it would have been rejected because, in actuality, it was a Tax Year 1995 return.) Sampling rates ranged from a minimum of 2.6 percent (Form 990-T gross UBI was less than $20,000, and either there was no Form 990 match or the Form 990 match was a section code 501(c)(3) return with assets under $2,500,000) to a maximum of 100 percent (either Form 990-T gross UBI was $300,000 or more, or it had any amount of gross UBI and matched a Form 990 with assets of $10,000,000 or more) [13]. Other Forms 990/990-T matches within various ranges of gross UBI, assets, and section codes were selected at rates ranging from 4 percent to 40 percent. The information presented in this data release 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 made to the original return as a result of administrative processing, audit procedures, or a taxpayer amendment were not incorporated into the database. Because the data are based on a sample, they are subject to sampling error. In order to use these statistics properly, the magnitude of the sampling error, measured by the coefficient of variation (CV), should be taken into account. Figure D shows CV’ for selected financial data. s CV’ are not shown for returns with gross UBI of s $500,000 or more because they were sampled at the 100percent 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 Statistics of Income Bulletin. Explanation of Selected Terms Advertising Income.--Gross income realized by an 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 (each described in Figure D Coefficients of Variation for Selected Items, Tax Year 1994 Gross unrelated business income Total deductions Net income (taxable profit) Total income tax Size of gross unrelated business income Coefficient of variation (percentages) (1) (2) (3) (4) 1.44 Total................................................................................................ 1.10 1.40 1.44 $1,000 under $10,001 ¹................................................................................................ 3.47 8.28 7.19 7.16 $10,001 under $100,000 ¹................................................................................................ 1.63 4.66 5.30 6.63 $100,000 under $500,000................................................................................................ 0.96 4.54 3.72 4.01 $500,000 or more................................................................................................ N/A N/A N/A N/A ¹ 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. N/A - Not applicable. 115 Unrelated Business Income of Nonprofit Organizations, 1994 116 the Appendix to this data release) 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 exempt under Internal Revenue Code sections 501(c)(7), (9), and (17)) were not taxed on the net gains from the sale, exchange, or other disposition of property. However, net capital gains on sales of debt-financed property, certain gains on the cutting of timber (section 1231), and gains on sales of certain depreciable property (described in sections 1245, 1250, 1252, 1254, and 1255) were taken into account in computing capital gain net income. (See the explanation of Investment Income (Less Loss) for information regarding investment income of section 501(c)(7), (9), and (17) organizations.) 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 the carrying on of an unrelated trade or business. Allowable deductions included those directly connected with rental of personal property; those allocable to unrelated debtfinanced 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; 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” carryover; and “other deductions.” 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 below), except for two items that were required to be reported separately: the “net operating loss carryover” and the “specific deduction,” also defined below. Deductions Not Directly Connected With Unrelated Business Income.--The component deductions were “setasides,” “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 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’ exempt activity exceeded the income from s the exempt activity, then the excess of exempt expenses over exempt income 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, 116 Unrelated Business Income of Nonprofit Organizations, 1994 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 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 return 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 return 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 (see the explanation of 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, as shown on the tax return, were gross profit (less loss) from sales and services; capital gain net income; net gain (less loss), sales of noncapital assets; net capital loss deduction (trusts only); income (less loss) from partnerships; rental income; unrelated debt-financed income; investment income (less loss) of Internal Revenue Code section 501(c)(7), (9), and (17) organizations; annuities, interest, rents, and royalties from controlled organizations; “exploited exempt activity” income; advertising income; and “other income” (less loss). (For an explanation of how income is allocated to the components of gross UBI, see the separate listings for each component.) Income from Controlled Organizations.--When an exempt organization controls another organization, the gross annuities, interest, rents, and royalties 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” means: (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 nonstock organization, at least 80 percent of the directors or trustees of the organization are either representatives of, or directly or indirectly controlled by, a tax-exempt organization. The rules for debtfinanced property did not apply to passive income from controlled organizations. (See the explanation of Unrelated Debt-financed Income.) Income (Less Loss) from Partnerships.--If an organization was a partner in any partnership that carried on an unrelated trade or business, this was the organization’ s share of partnership gross unrelated business income less its share of partnership deductions that were directly connected with the unrelated income. Investment Income (Less Loss).-- This item was reported only by organizations exempt under Internal Revenue Code sections 501(c)(7), (9), and (17) (each described in the Appendix to this data release) and included income such 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 from a controlled organization (excluding dividends) or debt-financed income, or the rents were of the type described in the explanation of rental income. (See explanations of Income from Controlled Organizations, Rental Income, and Unrelated Debt-financed Income.) Net Capital Loss (Trusts Only).--If a trust had a net loss from sales or exchanges of capital assets, it was allowed a deduction for the amount of the net loss or $3,000, whichever was lower. (Corporations were not allowed to deduct any excesses of capital losses over capital gains.) Trusts reported the net capital loss deduction on Form 990-T as a negative component of gross unrelated business income. Most of the trusts filing Forms 990-T were Individual Retirement Arrangements (IRA’ employee pension, s); profit-sharing, or stock bonus plans; and employees’ 117 Unrelated Business Income of Nonprofit Organizations, 1994 118 beneficiary associations providing for payment of life, health, accident, or other benefits to members. 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 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 (net income), negative (deficit), or zero. Net income represented taxable profit, which 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.) Net Operating Loss Carryover.--The net operating loss carryover (as described in Code section 172) was allowed as a deduction in computing unrelated business taxable income. However, the net operating loss carryback or carryover (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 specified prior or future years for which an organization reported an overall deficit from its unrelated trade or business activities. The statistics in this data release represent only the net operating loss carryover because carrybacks from future years would be reported 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 employeerelated 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. Ex- amples are insurance benefits 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 were allocable, then the proxy tax was imposed on the organization. It was computed as the aggregate amount of nondeductible lobbying expenditures that was not included in the notices sent to the organization’ s members, multiplied by 35 percent. The proxy tax was required to be reported on Form 990-T and was included in total income tax; however, there was no connection between the proxy tax and the taxation of income from an organization’ unrelated business activities. Forms 990-T s filed solely to report the proxy tax (no unrelated business income (UBI) reported) were excluded from the SOI sample. Organizations whose returns were included in the SOI sample reported an aggregate $4.5 million of proxy tax. Based on an unpublished tabulation of data from the IRS Returns Transaction File, a total of $11.3 million of proxy tax was reported on Forms 990-T filed for Tax Year 1994. 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 generally were 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 excluded from 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 118 Unrelated Business Income of Nonprofit Organizations, 1994 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.--These amounts were allowed to social 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)) as a deduction from investment income. The deduction was equal to the amount of passive income (generally, investment income) that these organizations set aside (1) to be used for charitable purposes or (2) to provide payment of life, health, accident, or other insurance benefits (section 501(c)(9) and (17) organizations only) . However, any amounts set aside that exceeded the “qualified asset account” limit, as figured under section 419A, were not allowed as a deduction from unrelated business investment income; they were treated as taxable investment income. A section 419A qualified asset account is any account consisting of assets set aside to provide for the payment of disability benefits, medical benefits, severance pay benefits, or life insurance benefits. Specific Deduction.--The specific deduction was a $1,000 deduction, considered “not directly connected” with gross unrelated business income, allowed to all organizations that had positive taxable income after all other types of deductions were taken. If positive taxable income was less then $1,000, then an organization could take a specific deduction equal to its taxable income. Total Income Tax.--Total income 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 expenditures, the tax from recomputing certain prior-year credits (“recapture taxes”), the “alternative minimum tax,” and the “environmental tax.” Unrelated Business Income.--This was income of a taxexempt organization that was from a trade or business which was regularly carried on by the organization and which was not substantially related to the performance of the organization’ exempt purpose or function (other than s that the organization needed the profits derived from the unrelated activity). The term “trade or business” generally comprised any activity carried on for the production of income from selling goods or performing services. Activities of producing or distributing goods or performing services from which gross income was derived 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. Unrelated Business Income Tax.--This was the tax imposed on unrelated business net income (taxable profit). It was determined based on the regular corporate or trust income tax rates that were in effect for the 1994 Tax Year, as shown in the following schedules. Tax Rates for Corporations (Section 11 of the Internal Revenue Code) Amount of unrelated business taxable income is: But not over-$50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 -- Over-$0 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 (Section 1(e) of the Internal Revenue Code) Amount of unrelated business taxable income is: But not over-$1,500 3,600 5,500 7,500 -Of the amount over-$0 1,500 3,600 5,500 7,500 Over-$0 1,500 3,600 5,500 7,500 Tax is: 15% $225 + 28% 813 + 31% 1,402 + 36% 2,122 + 39.6% Unrelated Debt-financed Income.--Gross income from investment property for which there was acquisition indebtedness 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, 119 Unrelated Business Income of Nonprofit Organizations, 1994 investment income) were considered to be unrelated debtfinanced income, but only if the income arose from property acquired or improved with borrowed funds and if the production of income was unrelated to the organization’ s tax-exempt purpose. When any property held for the production of income by an organization was disposed of at a gain during the tax year, and there was acquisition indebtedness outstanding at any time during the 12-month period prior to the date of disposition, the property was considered debt-financed property, and the gain was treated as unrelated debt-financed income. Income from debt-financed property did not include rents from personal property (e.g., computers or furniture) leased with real property, certain passive income from controlled organizations, and other amounts that were otherwise included in computing unrelated business taxable income. Internal Revenue Code section 501(c)(7), (9), and (17) organizations reported all debt-financed income as “Investment Income (Less Loss).” All other organizations reported debt-financed income separately. Notes and References [1] Organizations that are recognized as tax exempt under section 501(a) of the Internal Revenue Code, and described in Code sections 401(a), 408(e), and 501(c), must file a Federal income tax return (Form 990-T) if they received $1,000 or more of gross income from business activities that were considered unrelated to the purposes for which they received tax-exempt status. Code section 501(d) religious and apostolic organizations, farmers’cooperatives, and nonexempt charitable trusts treated as exempt organizations file tax forms other than Form 990-T. Returns filed by organizations with gross unrelated business income (UBI) below the $1,000 filing requirement threshold were excluded from the statistics presented in this data release. Some of these returns were filed inadvertently; others were filed for a specific reason, such as to claim a refund of Form 1099 backup withholding that was withheld erroneously on interest or dividend payments because the payer did not realize that the payee was a tax-exempt organization. [2] While the largest share of total income tax was the tax on unrelated business income, total tax also could have included the “proxy tax” on certain lobbying expenditures, “recapture taxes” (such as from recomputation of prior-year investment or lowincome housing credits), the “alternative minimum 120 tax” (AMT), and the environmental tax. Also, the foreign tax credit, general business credit, prior-year minimum tax credit, and other credits (such as the U.S. possessions tax credit, nonconventional source fuel credit, and qualified electric vehicle credit) were subtracted from unrelated business income tax in computing total tax. Total applied credits for 1994 were $1.9 million and total additional taxes were $5.6 million. The amount of additional taxes is understated because Forms 990-T filed solely to report the proxy tax (no unrelated business income was reported) were excluded from the SOI sample and, therefore, are not represented in these statistics. Based on returns in the SOI sample, the amount of the proxy tax included in total income tax was $4.5 million. Based on an unpublished tabulation of data from the IRS Returns Transaction File, the total amount of proxy tax reported on all Forms 990-T filed for Tax Year 1994 was $11.3 million. The proxy tax was required to be reported on the Form 990-T and was included in total income tax; however, there was no connection between the proxy tax and the taxation of income from an organization’ s unrelated business activities. The proxy tax is defined in the Explanation of Selected Terms section of this data release. [3] See Riley, Margaret, “Exempt Organization Business Income Tax Returns, 1993: Highlights and an Analysis of Exempt and Nonexempt Finances,” Statistics of Income Bulletin, Spring 1997, Volume 16, Number 4, for a discussion of the effect of the Revenue Reconciliation Act of 1993 on nonprofit organizations. [4] The term “charitable” refers to tax-exempt organizations with purposes that are charitable, educational, scientific, literary, or religious in nature. [5] Public disclosure of data from the Form 990 “information” return is allowed under Internal Revenue Code section 6104(b), with the exception of information on contributors. Public disclosure of specific taxpayer data from Form 990-T is not allowed because it is a “tax” return and, as such, is covered by the confidentiality and disclosure provisions of Code section 6103. [6] In addition to Forms 990, the samples included Forms 990-EZ, Short Form Return of Organization Exempt From Income Tax, which were allowed to be filed by smaller organizations (those with annual 120 Unrelated Business Income of Nonprofit Organizations, 1994 gross receipts of less than $100,000 and total assets of less than $250,000 at end of year). A small number of these returns matched Forms 990-T in the integrated sample, but they were excluded from the analysis because they did not contain all of the detailed financial data items reported on Form 990 that are needed for comparison with Form 990-T financial data. Some items that were required to be reported separately on Form 990 were allowed to be lumped together in an “other” category on the Form 990-EZ, such as “other income.” [7] For the most recent Form 990 annual data on organizations tax-exempt under Internal Revenue Code sections 501(c)(3) (excluding private foundations and most religious organizations) through 501(c)(9), see Hilgert, Cecelia, “Charities and Other Tax-Exempt Organizations, 1994,” in this issue of the Statistics of Income Bulletin. Private foundations, tax exempt under Code section 501(c)(3), are required to file Form 990-PF (Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation), rather than Form 990. For the most recent annual data on private foundations, see Arnsberger, Paul, “Private Foundations and Charitable Trusts, 1994,” Statistics of Income Bulletin, Fall 1997, Volume 17, Number 2. Private foundations were required to report taxable income on Forms 990-T, but this type of organization was not included in the integrated sample design. “Nonexempt charitable trusts” (described in Code section 4947(a)(1)) that filed the Form 990-PF information return for 1994 were required to report taxable income on Form 1041, U.S. Fiduciary Income Tax Return, not Form 990-T. [8] The Form 990 sample weights, rather than the Form 990-T sample weights, were used to produce matched record population estimates presented in this section of the data release. The matched data represent Form 990-T information reported only by those organizations whose returns were selected for the Form 990 samples, which are not all inclusive of the types of organizations that may be required to file Form 990-T. Some tax-exempt organizations file Form 990-T but do not file Form 990. See footnote 9, items (2), (3), and (4), for a description of those organizations. Form 990-T sample weights were used to produce the estimates presented elsewhere in this data release. Because Figure B is based on Form 990 sample weights, and the statistics presented in all other sections of this data release are based on Form 990-T sample weights, Figure B should not be compared to the data shown in Figure A or Tables 1 through 7. For detailed information on Statistics of Income sampling methodology for producing population estimates, see the general appendix, located near the back of this issue of the Statistics of Income Bulletin, particularly the Sample Criteria and Selection of Returns section and the Method of Estimation section. See, also, the Data Sources and Limitations section of this data release. [9] Some reasons why the estimates of matched Form 990-T filings shown in Figure B (produced using Form 990 sample weights) are lower than the estimates of overall Form 990-T filings shown in Table 1 (produced using Form 990-T sample weights) are (1) Forms 990-T and matching “short” Forms 990-EZ that were part of the integrated samples were excluded from the matched-return analysis (see footnote 6); (2) some organizations filed a Form 990-T, but did not file a Form 990 because their gross receipts were below the $25,000 Form 990 filing threshold; (3) churches, which are tax-exempt under Internal Revenue Code section 501(c)(3), are not required to file Form 990 or Form 990-EZ, but are required to file Form 990-T if they had unrelated business income; and (4) private foundations, which are tax-exempt under section 501(c)(3), file Form 990-PF, not Form 990; therefore, a Form 990-T filed by a private foundation would not have a matching record in the Form 990 sample. [10] In order to shift from a tax concept to a “receipts and expenditures” concept of income and expenses, adjustments were made to develop revised income totals from both tax forms that represented, to the extent possible, the organizations’actual financial involvement in conducting current tax year (1994) operations, and that were more analogous for comparing total financial activity with unrelated business financial activity. This was accomplished by (1) excluding certain items that were reported for tax purposes and were not current-year income, or were not directly associated with the operation of a business or program, and (2) adding back to income totals (either on Form 990 or Form 990-T, as applicable) certain expense items that were allowed to be subtracted from gross income prior to calculating total income. 121 Unrelated Business Income of Nonprofit Organizations, 1994 [11] Organizations filing a Form 990-T for 1994 were required to enter at least one, and up to three, industry codes for their principal business activities, based on the amount of gross unrelated business income they generated. If an organization engaged in more than one type of activity, it was instructed to list the code for the largest (primary) unrelated activity (in terms of gross income) first, then the codes for the next two largest activities, in descending order. [12] Running a simple computerized query against the database of matched records can list cases where Form 990-T unrelated business income was larger than Form 990 total income. It is obvious in these cases that at least some unrelated income was not included on Form 990. However, when total income on Form 990 is larger than unrelated income on the Form 990-T (which is the expected norm), there are no other specific reporting characteristics available for use in a database query that would easily identify cases where unrelated business income was reported on one return, but not the other. An actual examination of each Form 990/Form 990-T pair of returns would be necessary. (The returns used for this study were those originally filed with the IRS and processed prior to any audit or examination procedures.) Total unrelated business income and its components are required to be entered in Form 990’ Part VII, s Analysis of Income-Producing Activities, but the reporting has been fairly poor and has proven to be inadequate for research purposes thus far. [13] 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, Publication 1136, Spring 1998. 122 122 Unrelated Business Income of Nonprofit Organizations, 1994 Appendix Types of Tax-Exempt Organizations Subject to the Unrelated Business Income Tax Provisions, by Internal Revenue Code Section Code section 401(a) 408(e) 501(c)(2) (3) Description of organization Qualified pension, profit-sharing, or stock bonus plans Individual Retirement Arrangements 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 General nature of activities Fiduciary agent for pension, profit-sharing, or stock bonus plans Fiduciary agent for retirement funds Holding title to property for exempt organizations Activities of a nature implied by the description of the class of organization (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 benefits to members Providing for payment of life, health, accident, or other 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 societies and associations (10) Lodges, societies, or associations devoting their net earnings to charitable, fraternal, and other specified purposes, without life, health, or accident benefits to members Fiduciary association providing for payment of retirement benefits Activities of a mutually beneficial nature implied by the description of the class of organization (11) Teachers' retirement fund associations (12) Benevolent life insurance associations, mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations Cemetery companies (13) Arranging for burials and incidental related activities (14) State-chartered credit unions and mutual reserve funds Providing loans to members 123 Unrelated Business Income of Nonprofit Organizations, 1994 Appendix Types of Tax-Exempt Organizations Subject to the Unrelated Business Income Tax Provisions, by Internal Revenue Code Section--Continued Code section 501(c)(15) Description of organization 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 Providing insurance to members, substantially at cost (16) Financing crop operations in conjunction with activities of a marketing or purchasing association (17) Supplemental unemployment benefit trusts Fiduciary agent for payment of supplemental unemployment compensation benefits Providing for payments of benefits under a pension plan funded by employees Activities implied by the nature of the organization (18) Employee funded pension trusts (created before June 25, 1959) Posts or organizations of past or present members of the armed forces Black lung benefit trusts (19) (21) 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 124 (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 (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 NOTE: Prepaid legal service funds, described in section 501(c)(20) of the Internal Revenue Code, were no longer tax exempt beginning with tax years after June 30, 1992. 124 Unrelated Business Income of Nonprofit Organizations, 1994 Table 1.--Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Net Income (Less Deficit), Deficit, and Total Income Tax, by Internal Revenue Code Section Describing Type of Tax-Exempt Organization [All figures are estimates based on samples--money amounts are in thousands of dollars] Internal Revenue Code section Number of returns Gross unrelated business income (UBI) (2) Total deductions 1,2 Number of returns (3) Net income (less deficit) Deficit Number of returns ³ (5) 31,339 925 5,248 175 8,145 1,367 2,110 4,863 5,780 805 420 169 -118 *11 *73 ** -** ** 1,117 --** -*6 Total income tax Number of returns (8) 18,594 875 5,043 *97 2,967 579 1,120 2,023 4,530 392 362 *108 -63 *4 *61 ** -** ** 357 --** -*6 4 Amount (4) 6,506,838 35,734 20,334 103,917 4,075,056 290,072 263,804 867,016 364,027 72,481 157,928 11,986 -14,192 *2,025 *11,075 ** -** ** 137,366 --** -*2,217 Amount (6) -1,127,001 88,869 10,184 -58,960 -955,136 -40,213 -70,200 -163,002 -8,968 -18,691 113,197 -1,366 --641 *-14 *-2,986 ** -** ** -26,374 --** -*10,651 (7) -1,769,954 -12,886 -4,466 -61,167 -1,174,048 -55,065 -92,271 -217,972 -70,552 -24,666 -9,550 -2,581 --4,431 *-31 *-3,456 ** -** ** -32,239 --** -** Amount (9) 195,191 34,325 4,025 *611 64,695 3,888 5,465 18,207 12,927 814 43,403 *219 -899 *3 *70 ** -** ** 1,051 --** -*4,153 (1) All sections.......................................................................................... 35,657 5,379,838 35,418 401(a)....................................................................................................988 988 124,603 408(e).................................................................................................... 5,330 30,518 5,289 501(c)(2).................................................................................................... 182 44,957 178 501(c)(3).................................................................................................... 9,277 3,119,920 9,267 501(c)(4).................................................................................................... 1,498 249,859 1,498 501(c)(5).................................................................................................... 2,625 193,605 2,579 501(c)(6).................................................................................................... 5,962 704,015 5,962 501(c)(7).................................................................................................... 6,447 355,059 6,325 501(c)(8).................................................................................................... 929 53,789 928 501(c)(9).................................................................................................... 653 271,125 640 501(c)(10).................................................................................................... 251 10,620 251 501(c)(11).................................................................................................... ---501(c)(12).................................................................................................... 118 13,551 117 501(c)(13).................................................................................................... *32 *2,011 *32 501(c)(14).................................................................................................... *73 *8,089 *73 501(c)(15).................................................................................................... ** ** ** 501(c)(16).................................................................................................... ---501(c)(17).................................................................................................... ** ** ** 501(c)(18).................................................................................................... ** ** ** 501(c)(19).................................................................................................... 1,281 110,992 1,281 501(c)(21) 5 .................................................................................................... ---501(c)(22).................................................................................................... ---501(c)(23).................................................................................................... ** ** ** 501(c)(24).................................................................................................... ---501(c)(25).................................................................................................... *6 *12,868 *5 *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 $1.6 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on attached schedules. ³ Excludes returns with net income (less deficit) equal to zero. 4 Total income 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 taxes from recapture of certain prior-year credits, the "alternative minimum tax," the environmental 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 income 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, total proxy tax was $4.5 million. 5 Prepaid legal service funds, described in section 501(c)(20) of the Internal Revenue Code, were no longer tax exempt beginning with tax years after June 30, 1992. NOTES: Detail may not add to totals because of rounding. See the Appendix to this data release for a listing of the types of tax-exempt organizations, by the Internal Revenue Code section describing them. 125 Unrelated Business Income of Nonprofit Organizations, 1994 Table 2.--Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Net Income (Less Deficit), Deficit, and Total Income Tax, by Size of Gross UBI [All figures are estimates based on samples--money amounts are in thousands of dollars] Size of gross unrelated business income (UBI) Number of returns Gross unrelated business income (UBI) (2) Total deductions Number of returns (3) 1,2 Net income (less deficit) Deficit Number of returns ³ (5) 31,339 13,400 12,194 4,337 720 593 94 Total income tax 4 Number of returns (8) 18,594 9,589 6,401 2,011 321 232 40 Amount (4) 94,286 746,992 1,403,094 702,665 1,670,209 1,889,593 Amount (6) -1,127,001 -32,932 -235,169 -380,935 -152,546 -383,869 58,450 (7) -1,769,954 -50,744 -324,640 -484,367 -204,398 -502,288 -203,516 Amount (9) 195,191 4,314 18,438 27,956 16,292 41,159 87,032 (1) 5 Total.......................................................................................................................... 35,657 5,379,838 35,418 6,506,838 $1,000 under $10,001 ....................................................................... 15,437 15,646 61,354 5 $10,001 under $100,000 ....................................................................... 13,658 511,823 13,648 $100,000 under $500,000.......................................................................4,786 4,804 1,022,159 $500,000 under $1,000,000....................................................................... 790 790 550,119 $1,000,000 under $5,000,000....................................................................... 653 1,286,340 651 $5,000,000 or more....................................................................... 107 1,948,043 106 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 $1.6 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on attached schedules. ³ Excludes returns with net income (less deficit) equal to zero. 4 Total income 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 taxes from recapture of certain prior-year credits, the "alternative minimum tax," the environmental 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 income 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, total proxy tax was $4.5 million. 5 The gross unrelated business income (UBI) brackets of $1,000 under $10,001 and $10,001 under $100,000 reflect the different filing requirements for organizations with gross UBI of $10,000 or less (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. 126 Table 3.--Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Net Income (Less Deficit), Deficit, and Total Income Tax, by Size of Net Income (Taxable Profit) or Deficit [All figures are estimates based on samples--money amounts are in thousands of dollars] Size of net income (taxable profit) or deficit Number of returns Gross unrelated business income (UBI) (2) Total 1,2 deductions Number of returns (3) Net income (less deficit) Deficit Number of returns ³ (5) 31,339 12,751 -5,447 7,997 4,490 521 67 65 Total income tax Number of returns (8) 18,594 179 31 5,329 7,942 4,463 520 66 64 4 Amount (4) Amount (6) -1,127,001 -1,769,954 -2,735 30,873 129,940 100,919 43,883 334,603 (7) -1,769,954 -1,769,954 -------- Amount (9) 195,191 2,901 187 467 5,323 25,787 32,987 15,292 112,247 (1) Total.......................................................................................................................... 35,657 5,379,838 35,418 6,506,838 Deficit...................................................................................... 12,751 2,347,296 12,751 4,117,250 Zero...................................................................................... 4,319 570,087 4,319 570,087 $1 under $1,000...................................................................................... 5,447 5,447 46,607 43,872 $1,000 under $10,000...................................................................................... 7,997 238,675 7,788 207,801 $10,000 under $100,000...................................................................................... 4,490 569,750 4,481 439,809 $100,000 under $500,000...................................................................................... 521 368,820 504 267,901 $500,000 under $1,000,000...................................................................................... 57,369 67 101,252 67 $1,000,000 or more...................................................................................... 62 65 1,137,353 802,749 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 $1.6 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on attached schedules. ³ Excludes returns with net income (less deficit) equal to zero. 4 Total income 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 taxes from recapture of certain prior-year credits, the "alternative minimum tax," the environmental 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 income 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, total proxy tax was $4.5 million. NOTE: Detail may not add to totals because of rounding. 126 Unrelated Business Income of Nonprofit Organizations, 1994 Table 4.--Returns with Positive Net Income (Taxable Profit): Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Net Income (Taxable Profit), and Total Income Tax, by Size of Gross UBI [All figures are estimates based on samples--money amounts are in thousands of dollars] Number of returns (1) (2) (3) Total.......................................................................................................................... 18,588 2,462,455 18,348 4 $1,000 under $10,001 ......................................................................................9,466 9,675 33,289 4 $10,001 under $100,000 ...................................................................................... 6,365 231,972 6,356 $100,000 under $500,000...................................................................................... 1,981 412,053 1,964 $500,000 under $1,000,000...................................................................................... 310 213,951 310 $1,000,000 under $5,000,000...................................................................................... 222 429,214 220 $5,000,000 or more...................................................................................... 34 1,141,976 33 Size of gross unrelated business income (UBI) Number of returns Gross unrelated business income (UBI) Total 1,2 deductions Net income (taxable profit) Number of returns (5) 18,588 9,675 6,365 1,981 310 222 34 Total income tax ³ Number of returns (7) 18,384 9,564 6,304 1,957 308 218 34 Amount (4) 1,819,501 15,476 142,501 308,621 162,099 310,795 880,010 Amount (6) 642,953 17,813 89,471 103,432 51,852 118,419 261,966 Amount (8) 192,103 3,187 18,110 27,371 16,152 40,742 86,541 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 net income, cost of sales and services was $659.2 million. ² Includes both deductions reported on the main part of the tax return and expense items reported on attached schedules. ³ Total income 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 4 other allowable credits), plus taxes from recapture of certain prior-year credits, the "alternative minimum tax," the environmental 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 income 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 net income, total proxy tax was $1.9 million. 4 The gross unrelated business income (UBI) brackets of $1,000 under $10,001 and $10,001 under $100,000 reflect the different filing requirements for organizations with gross UBI of $10,000 or less (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. 127 Unrelated Business Income of Nonprofit Organizations, 1994 Table 5.--Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Net Income (Less Deficit), Deficit, and Total Income Tax, by Primary Unrelated Business Activity or Industrial Grouping [All figures are estimates based on samples--money amounts are in thousands of dollars] Primary unrelated business activity or industrial grouping Number of returns Gross unrelated business income (UBI) (2) Total deductions 1,2 Number of returns (3) Net income (less deficit) Deficit Number of returns ³ (5) Total income tax 4 Number of returns (8) 18,594 83 58 ** 346 163 *11 1,456 5,162 8,588 449 2,969 511 345 4,314 163 ** Amount (4) Amount (6) -1,127,001 -35,310 3,113 ** -52,379 -51,379 -152 -152,598 -791,084 -40,294 -2,132 139,540 -23,722 -5,347 -148,633 -8,767 ** (7) -1,769,954 -36,330 -4,224 ** -65,397 -54,918 -965 -207,160 -938,412 -448,229 -16,989 -11,347 -27,335 -11,981 -380,577 -12,693 ** Amount (9) 195,191 247 2,554 ** 4,186 1,111 *193 15,416 41,192 128,815 4,694 48,843 559 1,798 72,921 811 ** (1) All activities and groupings.......................................................................................................................... 31,339 35,657 5,379,838 35,418 6,506,838 Agriculture, forestry, and fishing.......................................................................................................................... 421 19,613 421 54,923 Mining.......................................................................................................................... 121 121 21,691 Construction.......................................................................................................................... ** ** ** Manufacturing.......................................................................................................................... 951 161,157 951 18,578 ** 213,537 378 78 ** 837 Transportation and public utilities.......................................................................................................................... 423 471 94,373 470 145,753 Wholesale trade.......................................................................................................................... 13,116 67 12,965 67 Retail trade.......................................................................................................................... 3,749 492,495 3,749 Services.......................................................................................................................... 13,949 2,658,065 13,862 645,092 3,449,148 47 3,400 11,580 Finance, insurance, and real estate, total.......................................................................................................................... 12,855 1,850,040 12,745 1,890,335 11,628 Unrelated debt-financed activity, except rental of real estate.......................................................................................................................... 614 119,081 614 121,212 555 Investment activities of Code section 501(c)(7), (9), and (17) organizations.......................................................................................................................... 3,778 378,988 3,722 239,448 3,278 Rental of personal property.......................................................................................................................... 896 39,156 896 62,878 824 Passive income activities with controlled organizations.......................................................................................................................... 434 31,102 429 36,450 406 Other finance, insurance, and real estate.......................................................................................................................... 7,133 1,281,713 7,084 1,430,347 6,565 Exploited exempt activities.......................................................................................................................... 326 46,950 326 55,717 261 ** 128 Not allocable.......................................................................................................................... ** ** ** ** *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 $1.6 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on attached schedules. ³ Excludes returns with net income (less deficit) equal to zero. 4 Total income 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 taxes from recapture of certain prior-year credits, the "alternative minimum tax," the environmental 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 income 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, total proxy tax was $4.5 million. NOTE: Detail may not add to totals because of rounding. 128 Unrelated Business Income of Nonprofit Organizations, 1994 Table 6.--Sources of Gross Unrelated Business Income (UBI), by Size of Gross UBI [All figures are estimates based on samples--money amounts are in thousands of dollars] Sources of gross unrelated business income (UBI) ¹ Gross unrelated business income (UBI) Number of returns Gross profit (less loss) from sales and services Number of returns (3) 14,147 Capital gain net income Number of returns (5) 513 254 259 101 96 23 29 10 Size of gross unrelated business income (UBI) Amount Amount (4) 2,700,302 11,741 Amount (6) 144,612 562 144,050 2,053 6,348 6,772 23,614 105,263 (1) (2) Total.......................................................................................................................... 35,657 5,379,838 2 2,3 $1,000 under $10,001 .......................................................................................................................... 15,646 61,354 3,438 $10,001 or more, total .......................................................................................................................... 20,011 5,318,483 10,709 2,688,560 $10,001 under $100,000 ².......................................................................................................................... 13,658 511,823 6,735 219,653 $100,000 under $500,000.......................................................................................................................... 4,804 1,022,159 3,039 537,567 $500,000 under $1,000,000.......................................................................................................................... 790 550,119 480 272,464 $1,000,000 under $5,000,000.......................................................................................................................... 611,203 653 1,286,340 394 $5,000,000 or more.......................................................................................................................... 60 107 1,948,043 1,047,674 Sources of gross unrelated business income (UBI) ¹--Continued Net capital loss (trusts only) Number of returns (7) (8) Total.......................................................................................................................... 78 -242 2,3 Size of gross unrelated business income (UBI) Net gain (less loss), sales of noncapital assets Number of returns (9) 309 4 Income (less loss) from partnerships Number of returns (11) 6,295 5,333 962 759 115 24 48 16 Amount Amount (10) 3,644 ** ** 394 ** 395 2,890 ** Amount (12) 134,379 14,652 119,726 18,040 9,644 1,710 20,183 70,149 $1,000 under $10,001 2 .......................................................................................................................... ** ** ** $10,001 or more, total .......................................................................................................................... ** ** ** $10,001 under $100,000 ².......................................................................................................................... *47 *-142 99 $100,000 under $500,000.......................................................................................................................... ** ** ** $500,000 under $1,000,000.......................................................................................................................... 5 -28 14 $1,000,000 under $5,000,000.......................................................................................................................... 11 -33 23 $5,000,000 or more.......................................................................................................................... ** ** ** Sources of gross unrelated business income (UBI) ¹-- Continued Rental income Unrelated debtfinanced income Number of returns (15) 2,358 Investment income (less loss) 6 Number of returns (17) 5,566 2,588 2,978 1,990 805 120 53 10 Size of gross unrelated business income (UBI) 5 Number of Amount returns (13) (14) Total.......................................................................................................................... 3,722 120,912 Amount (16) 347,868 2,515 345,353 32,775 54,276 30,992 93,203 134,106 Amount (18) 274,450 8,488 265,962 27,676 47,896 36,553 61,752 92,083 $1,000 under $10,001 2 .......................................................................................................................... 1,221 4,638 594 2,3 $10,001 or more, total .......................................................................................................................... 2,500 116,274 1,764 $10,001 under $100,000 ².......................................................................................................................... 1,893 37,814 1,115 $100,000 under $500,000.......................................................................................................................... 464 35,192 449 $500,000 under $1,000,000.......................................................................................................................... 74 18,463 86 $1,000,000 under $5,000,000.......................................................................................................................... 61 20,417 94 $5,000,000 or more.......................................................................................................................... 20 8 4,388 Footnotes at end of table. 129 Unrelated Business Income of Nonprofit Organizations, 1994 Table 6.--Sources of Gross Unrelated Business Income (UBI), by Size of Gross UBI--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 Amount Number of returns Amount Number of returns Amount (24) 942,711 11,391 931,320 90,690 183,704 100,563 245,473 310,890 Number of returns (25) 6,333 1,475 4,858 3,192 1,236 222 176 32 Amount (26) 576,161 4,946 571,215 71,046 110,001 61,473 166,920 161,775 controlled organizations 7 Exploited exempt activity income, except advertising Advertising income Other income (less loss) (19) (20) (21) (22) (23) Total.......................................................................................................................... 1,376 45,506 801 89,535 7,582 $1,000 under $10,001 2 .......................................................................................................................... 550 1,399 154 933 2,622 $10,001 or more, total 2,3.......................................................................................................................... 826 44,106 646 88,603 4,960 $10,001 under $100,000 ².......................................................................................................................... 3,270 569 6,844 280 4,980 $100,000 under $500,000.......................................................................................................................... 1,239 190 13,961 243 23,641 $500,000 under $1,000,000.......................................................................................................................... 219 22 3,375 61 17,387 $1,000,000 under $5,000,000.......................................................................................................................... 36 11,453 54 29,265 200 $5,000,000 or more.......................................................................................................................... 9 8,473 8 13,330 32 *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 For definitions of the sources of gross unrelated business income, see the Explanation of Selected Terms section of this data release. 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. 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. A total of gross UBI is shown separately for these larger organizations in order to facilitate comparison with Table 7. 4 Property other than capital assets generally included property of a business nature, in contrast to personal and investment property, which were capital assets. 5 Income from real property and personal property leased with real property. 6 Reported by Internal Revenue Code section 501(c)(7), (9), and (17) organizations only. 7 Annuities, interest, rents, and royalties. NOTE: Detail may not add to totals because of rounding. 130 130 Unrelated Business Income of Nonprofit Organizations, 1994 Table 7.--Types of Deductions, by Size of Gross Unrelated Business Income (UBI) [All figures are estimates based on samples--money amounts are in thousands of dollars] Organizations with gross Total Size of gross unrelated business income (UBI) number of returns Number of returns (1) (2) (3) Amount Total deductions 1,2 unrelated business income (UBI) of $10,000 or less ³ Total deductions Number of returns (4) (5) 94,286 94,286 -----2,4 Net operating loss carryover Number of returns (6) 2,782 2,782 -----(7) 34,680 34,680 -----Amount Specific deduction Number of returns (8) 10,739 10,739 -----(9) 10,208 10,208 -----Amount Amount Total......................................................... 35,657 35,418 6,506,838 15,437 $1,000 under $10,001 ³.......................................................................................................................... 15,646 15,437 94,286 15,437 $10,001 under $100,000 ³.......................................................................................................................... 13,658 13,648 746,992 -$100,000 under $500,000.......................................................................................................................... 4,804 4,786 1,403,094 -$500,000 under $1,000,000.......................................................................................................................... 790 790 702,665 -$1,000,000 under $5,000,000.......................................................................................................................... 653 651 1,670,209 -$5,000,000 or more.......................................................................................................................... -107 106 1,889,593 Organizations with gross unrelated business income (UBI) over $10,000 ³ Deductions directly connected with UBI Total Size of gross unrelated business income (UBI) deductions 2,5 Allocable to Total rental income 6 Number Amount (13) of returns (14) 1,113 -797 231 39 41 5 Amount (15) 75,893 -22,226 27,094 13,898 10,683 1,993 Allocable to unrelated debt-financed income 6 Number of returns (16) 1,592 -992 412 80 89 19 Amount (17) 359,614 -34,930 57,153 31,824 105,982 129,725 Allocable to investment income 6,7 Number of returns (18) 825 -408 333 61 19 4 Number of returns (10) Amount (11) Number of returns (12) Total.........................................................19,982 6,412,553 19,008 6,090,382 $1,000 under $10,001 ³.......................................................................................................................... ----$10,001 under $100,000 ³.......................................................................................................................... 13,648 746,992 12,814 721,644 $100,000 under $500,000.......................................................................................................................... 4,786 1,403,094 4,697 1,344,438 $500,000 under $1,000,000.......................................................................................................................... 790 702,665 767 662,357 $1,000,000 under $5,000,000.......................................................................................................................... 651 1,670,209 630 1,586,561 $5,000,000 or more.......................................................................................................................... 106 1,889,593 100 1,775,384 Organizations with gross unrelated business income (UBI) over $10,000 ³--Continued Deductions directly connected with UBI--Continued Allocable to Size of gross unrelated business income (UBI) investment income 6,7 --Continued Amount Allocable to income from controlled organizations Number of returns (19) (20) (21) 6 Allocable to exploited exempt activity income except advertising Number of returns (22) (23) 6 Direct advertising costs 6 Number of returns (24) (25) Compensation of officers, directors, and trustees Number of returns (26) (27) 34,425 -8,786 12,399 3,836 4,217 5,188 Amount Amount Amount Amount Total......................................................... 18,592 338 31,564 556 75,983 4,673 744,270 1,819 $1,000 under $10,001 ³.......................................................................................................................... --------$10,001 under $100,000 ³.......................................................................................................................... 2,828 183 4,007 240 3,355 3,048 79,731 1,047 $100,000 under $500,000.......................................................................................................................... 5,392 119 10,625 200 19,397 1,193 146,933 573 $500,000 under $1,000,000.......................................................................................................................... 1,798 12 2,476 58 14,994 211 71,808 94 $1,000,000 under $5,000,000.......................................................................................................................... 25,839 1,726 20 8,163 51 192 191,483 86 $5,000,000 or more.......................................................................................................................... 7 6,848 4 6,293 12,397 29 254,315 19 . Organizations with gross unrelated business income (UBI) over $10,000 ³--Continued Deductions directly connected with UBI--Continued Size of gross unrelated business income (UBI) Number of returns (28) Amount (29) Number of returns (30) 6,520 -4,044 1,894 315 227 40 Amount (31) 55,340 -9,886 19,457 7,547 10,755 7,695 Number of returns (32) 809 -300 316 71 98 23 Amount (33) 18,646 -700 1,597 1,477 7,911 6,961 Number of returns (34) 2,666 -1,480 923 127 114 22 Salaries and wages Repairs Bad debts Interest Amount (35) 47,368 -4,725 10,535 4,830 21,227 6,050 Total...................................................................................... 9,556 887,697 $1,000 under $10,001 ³...................................................................................... --$10,001 under $100,000 ³...................................................................................... 5,739 100,601 $100,000 under $500,000...................................................................................... 2,889 235,641 $500,000 under $1,000,000...................................................................................... 479 115,559 $1,000,000 under $5,000,000...................................................................................... 393 242,791 $5,000,000 or more...................................................................................... 193,105 56 Footnotes at end of table. 131 Unrelated Business Income of Nonprofit Organizations, 1994 Table 7.--Types of Deductions, by Size of Gross Unrelated Business Income (UBI)--Continued [All figures are estimates based on samples--money amounts are in thousands of dollars] Organizations with gross unrelated business income (UBI) over $10,000 ³--Continued Deductions directly connected with UBI--Continued Contributions Size of gross unrelated business income (UBI) Number of returns (36) Amount (37) Number of returns (38) Amount (39) Number of returns (40) 94 -*67 Amount (41) 3,423 -*222 486 2,716 -Taxes paid deduction Depreciation Depletion to deferred compensation plans Number of returns (42) 768 -378 270 64 44 12 Amount (43) 9,182 -419 1,527 867 1,529 4,840 Total......................................................... 10,416 152,806 6,947 131,825 $1,000 under $10,001 ³.......................................................................................................................... ----$10,001 under $100,000 ³.......................................................................................................................... 6,935 29,149 4,122 18,432 $100,000 under $500,000.......................................................................................................................... 2,757 56,247 2,125 37,919 $500,000 under $1,000,000.......................................................................................................................... 392 19,914 339 17,447 $1,000,000 under $5,000,000.......................................................................................................................... 283 20,744 311 37,299 $5,000,000 or more.......................................................................................................................... 49 26,752 50 20,728 } 22 5 -- { Organizations with gross unrelated business income (UBI) over $10,000 ³--Continued Deductions directly connected with UBI--Continued Contributions Size of gross unrelated business income (UBI) to employee benefit plans Number of returns Number of returns Net operating loss carryover Other deductions Deductions not directly connected with UBI Total Amount Amount Number of returns (48) 12,817 -8,276 3,429 572 467 73 Amount (49) 1,857,450 -118,495 264,380 169,673 450,072 854,830 Number of returns (50) 11,083 -7,798 2,511 400 320 54 Amount (51) 322,169 -25,347 58,655 40,309 83,648 114,209 132 (44) (45) (46) (47) Total......................................................... 4,192 155,849 5,765 1,430,455 $1,000 under $10,001 ³.......................................................................................................................... ----$10,001 under $100,000 ³.......................................................................................................................... 2,095 5,707 3,558 277,446 $100,000 under $500,000.......................................................................................................................... 1,466 19,117 1,601 418,541 $500,000 under $1,000,000.......................................................................................................................... 315 13,567 276 170,840 $1,000,000 under $5,000,000.......................................................................................................................... 268 40,364 289 403,059 $5,000,000 or more.......................................................................................................................... 47 77,094 42 160,569 Organizations with gross unrelated business income (UBI) over $10,000 ³--Continued Deductions not directly connected with UBI--Continued Size of gross unrelated business income (UBI) Specific deduction Number of returns Contributions Number of returns Set-asides Number of returns (56) 279 -138 87 26 22 6 7 Excess exempt expense Number of returns (58) 2,132 -1,222 634 125 130 21 Amount (59) 169,821 -13,842 36,013 25,150 49,611 45,205 Amount Amount Amount (57) 121,034 -3,048 16,186 13,829 29,156 58,814 (52) (53) (54) (55) Total................................................................................................................ 9,233 8,906 1,309 22,408 $1,000 under $10,001 ³.......................................................................................................................... ----$10,001 under $100,000 ³.......................................................................................................................... 2,009 6,729 6,448 844 $100,000 under $500,000.......................................................................................................................... 4,535 1,961 1,921 341 $500,000 under $1,000,000.......................................................................................................................... 297 292 58 1,038 $1,000,000 under $5,000,000.......................................................................................................................... 213 212 51 4,669 $5,000,000 or more.......................................................................................................................... 33 33 15 10,157 * 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 $1.6 billion. ² Includes both deductions reported on the main part of the tax return and expense items reported on attached 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 carryover, 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 49 and 52 through 59. 4 Excludes $38.7 million of cost of sales and services reported by organizations with gross UBI of $10,000 or less. See footnote 1 for explanation. 5 Excludes $1.5 billion of cost of sales and services reported by organizations with gross UBI over $10,000. See footnote 1 for explanation. 6 This deduction was required to be reported as a lump-sum total only and may have included component deductions that were of the same type shown elsewhere in this table. For example, if deductions "allocable to rental income" included depreciation, then that amount of depreciation would not be included in the separately reported item, "depreciation." Therefore, the total amount shown for some of the separately reported deductions may be understated. 7 Reported by Internal Revenue Code section 501(c)(7), (9), and (17) organizations only. NOTE: Detail may not add to totals because of rounding. 132