McGuireWoods Tax Lawyers Author Expert Analysis on Unrelated Business Income Tax

December 18, 2018

A client alert written by three lawyers in McGuireWoods’ highly regarded Tax and Employee Benefits Department was published by Law360 as a Dec. 17 “Expert Analysis.”

Michele McKinnon, Brad Ridlehoover and William Gray wrote about changes that took effect this year as a result of the federal tax reform law enacted a year ago. Even though the Internal Revenue Service issued guidance on these new unrelated business taxable income rules, several key aspects of the rules remain unclear ahead of fast-approaching filing deadlines.

For example, the authors explained, qualifying as an “exempt organization” — such as a charity, a social welfare organization or a professional association — does not mean the organization pays no income tax. When an exempt organization conducts business outside its primary purpose, the “unrelated business taxable income” (UBTI) from it is taxed at regular corporate rates, they wrote.

Starting this year, exempt organizations must calculate their net UBTI from each unrelated business transaction separately, meaning the organizations can no longer use losses from one activity to offset taxable income from another activity.