02/22/2018

ASAE Shares Guidance on ‘Siloing’ of UBIT

A new provision impacts how unrelated business taxable income is computed

Earlier this week, the American Society of Association Executives (ASAE) and Tate & Tryon, a CPA firm, prepared an article this week to help tax-exempt organizations understand a provision in the new tax law that requires separate reporting of taxable income from different business activities.

The provision in the Tax Cuts and Jobs Act (TCJA), the sweeping overhaul of the tax code signed into law at the end of last year, requires that unrelated business taxable income (UBTI) be separately computed for each business activity, ostensibly to prevent tax-exempt groups from using the loss from one unrelated business activity to offset the income from another unrelated business activity.

The IRS, which is preparing guidance implementing the tax law, recently updated its 2017-2018 Priority Guidance Plan to include this particular issue as a “near-term priority.” Guidance is certainly needed, as the new law does not specify what makes up a separate unrelated trade or business, the article says.

“It’s possible that IRS could take a practical approach, and group together business activities in broad categories, such as advertising, or debt-financed income,” said Deborah Kosnett, CPA, and Lisa Heller, CPA, both with Tate & Tryon. “Or, IRS could take a stricter approach and consider advertising from each publication, as well as from each meeting and conference, as separate unrelated business activities. In this event, the organization would need to compute UBI separately for each advertising activity, and pay tax on any activity that turns a profit (with no corresponding offset from activities generating losses).”

Kosnett and Heller recommend that exempt organizations start taking a look at their UBI activities, and start making contingency plans for potentially adverse future guidance from the IRS.

This article was provided to OSAE by the Power of A and ASAE's Inroads.