A new article by ASAE and Tate & Tryon helps tax-exempt organizations better understand a provision in the new tax law around how unrelated business taxable income is computed and reported.
ASAE and the CPA firm Tate & Tryon prepared an article [PDF] last 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, the sweeping overhaul of the tax code signed into law at the end of last year, requires that unrelated business taxable income 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 about implementing the tax law, recently updated its 2017-2018 Priority Guidance Plan [PDF] 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,” wrote Deborah Kosnett, CPA, and Lisa Heller, CPA, both with Tate & Tryon, in the article. “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 [unrelated business income] separately for each advertising activity, and pay tax on any activity that turns a profit (with no corresponding offset from activities generating losses).”
In the meantime, Kosnett and Heller recommend that tax-exempt organizations start taking a look at their unrelated business income activities and begin making contingency plans for potentially adverse future guidance from the IRS.