Unrelated business income tax returns, 2000, with a decade in review, 1991-2000

Unrelated business income tax returns, 2000, with a decade in review, 1991-2000

Margaret Riley

The number of nonprofit organizations filing Form 990-T, Exempt Organization Business Income Tax Return, declined between Tax Years 1999 and 2000, from 42,151 to 38,567, the second consecutive year that the number of filings fell. Organizations reporting “unrelated business income” (UBI) filed 9 percent fewer returns for 2000. Returns with gross UBI of $10,000 or less, the threshold for exemption from filing return schedules and reporting detailed information on deductions, decreased by 15 percent; those with gross UBI over $10,000 decreased by 4 percent. The section, “Fluctuations in Form 990-T Filings,” which appears later in this article, discusses annual changes in the number of returns filed from 1991-2000 and how they were influenced by the type of filer and size of gross UBI.

Even though 9 percent fewer returns were filed for 2000, aggregate gross UBI rose by 9 percent, amounting to $8.4 billion. However, the percentage changes between 1999 and 2000 in the amount of gross UBI reported by organizations in the smaller and larger gross UBI size classes mentioned above were -13 percent and +9 percent, respectively. Organizations reporting gross UBI over $10,000 represented 61 percent of Form 990-T fliers, and were responsible for 99 percent of total gross income.

After offsetting total gross UBI with $7.7 billion of deductions, the resulting unrelated business taxable income (less deficit) for 2000 was $0.7 billion. Organizations reporting unrelated business (positive) taxable income numbered 19,336, about half of all fliers, and taxable income dropped by 4 percent from that reported for 1999. Both the unrelated business income tax and total tax (which takes into account certain credits and other taxes) also dropped by 4 percent. In addition to the declines in total taxable income and taxes, aggregate unrelated business deficits grew by 20 percent. Figure A contains the major financial statistics cited above, plus other selected data from Forms 990-T filed for Tax Years 1999 and 2000.

Background

Definition of Unrelated Business Income

Nonprofit organizations that are granted Federal tax exemption based on their mission-related purposes are allowed, within certain limits, to generate income from unrelated business activities; however, the income from these activities is subject to taxation. Unrelated business income is produced from an activity that is both conducted on a regular basis and not directly related to an organization’s tax-exempt mission. The fact that the income may be used for furthering an organization’s exempt purposes does not alter the definition [1]. Any profits from an organization’s unrelated business activities are taxed at regular corporate or trust income tax rates [2]. 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 games of chance, as specified in the Internal Revenue Code (IRC).

Form 990-T Requirements

Organizations that are described in IRC sections 220(e), 401(a), 408(e), 408A, 501(c)(2)-(27), 529(a), and 530(a) must file a 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. (The various types of tax-exempt organizations subject to the unrelated business income tax provisions are described by Code section in the Appendix to this article.) IRC section 501(d) religious and apostolic organizations, farmers’ cooperatives, and section 4941(a)(1) “nonexempt charitable trusts” report taxes on forms other than Form 990-T.

Most tax-exempt organizations are required to file an annual Form 990, Return of Organization Exempt From Income Tax, or Form 990-EZ, Short Form Return of Organization Exempt From Income Tax (used by organizations with annual gross receipts of less than $100,000 and total end-of-year assets of less than $250,000) [3]. The Form 990-T is required only for a tax year in which an organization has unrelated business income. While specific taxpayer information reported on an exempt organization’s Form 990/990-EZ “information return” can be disclosed to the public, specific taxpayer information reported on its Form 990-T “tax return” cannot. Under disclosure rules governing the release of taxpayer information, only aggregate totals from Form 990-T can be presented in this article.

The Internal Revenue Service required organizations having accounting periods beginning in 2000 (and, therefore, ending between December 2000 and November 2001, for full-year return fliers) to file a 2000 Form 990-T to report unrelated business income of $1,000 (the filing threshold) or more. The associated required due dates for filing Tax Year 2000 Forms 990-T generally spanned May 2001 to April 2002, but extensions of time to file beyond this period routinely were granted to many organizations. For all Internal Revenue Code (IRC) section 220(e), 40 l(a), 408(e), 408A, and 530(a) trusts, the required accounting period was Calendar Year 2000, and the filing date was April 15, 2001. Corresponding to the required filing dates, the Tax Year 2000 study sample was drawn from Forms 990-T processed by IRS throughout Calendar Years 2001 and 2002. (See the Data Sources and Limitations section of this article for detailed information on the study sample.) Because of the various accounting periods of the organizations filing a 2000 return, the financial activities covered in this article span the period January 2000 through November 2001, although the majority of activities occurred during Calendar Year 2000.

Any 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 article. 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 of tax that was withheld erroneously on interest or dividend payments because the payer did not realize that the payee was a tax-exempt organization. Organizations with gross UBI between $1,000 and $10,000 were required to report only totals for expenses and deductions (except for the “specific deduction” and “net operating loss deduction,” which all organizations reported separately). Organizations with gross UBI over $10,000 were required to report more detailed expenses and deductions.

Statistical Tables

At the end of this article, Tax Year 2000 statistics covering selected financial data (including gross UBI, total deductions, unrelated business taxable income (UBTI), and total income tax) are shown in Tables 15. Tables 6 and 7 provide data on detailed sources of UBI and deductions, respectively. Statistics shown in Table 1 are distributed by type of organization based on Internal Revenue Code sections. Tables 2, 4, 6, and 7 are distributed by size of gross UBI; Table 4 is also distributed by type of entity. Table 3 is distributed by size of UBTI, while Table 5 is distributed by unrelated business activity or industrial grouping.

Taxable Income and Taxes, 2000

Based on $1.4 billion of total unrelated business taxable income (UBTI) collectively reported for 2000, the associated unrelated business income tax (UBIT) was $405.8 million. After adjusting UBIT for certain credits and other taxes, the resulting total tax reported was $402.9 million [4]. Total tax takes into account the unrelated business income tax, plus $1.6 million of alternative minimum tax and $3.5 million of “proxy tax” on certain nondeductible lobbying and political expenditures, minus $8.0 million of tax credits [5, 6]. Tax credits included the foreign tax credit ($3.9 million), general business credit ($2.7 million), credit for prior-year minimum tax ($1.0 million), and “other” credits ($0.4 million) [7]. Total tax can also include recapture taxes, but no organizations reported recapture taxes for 2000.

The proxy tax is required to be reported on Form 990-T and is included in total tax, but it has no connection to the unrelated business income tax or an organization’s involvement in unrelated business activities. (See the definition of proxy tax in the Explanation of Selected Terms section of this article.) The $3.5 million of proxy tax shown in the total tax computation above is only that reported by Form 990-T filers with gross unrelated business income above the $1,000 filing threshold, a criterion for selection for the Statistics of Income (SOI) sample. Proxy tax reported by organizations that had no UBI or those that had UBI below the filing threshold is not included.

According to unpublished data available from the IRS Business Returns Transaction File, a total of $12.1 million of proxy tax was reported on 618 returns for Tax Year 2000. About 66 percent of these returns were filed solely to report the proxy tax (i.e., no income from unrelated business activities was reported) and, therefore, were not included in the unrelated business income tax return study.

Nonprofit Charitable Organizations

As shown in Figure B, nonprofit “charitable” organizations described as tax-exempt under IRC section 501(c)(3) made up 30 percent of all Tax Year 2000 Form 990-T fliers and reported $4.8 billion of gross unrelated business income (UBI), or 57 percent of the total $8.4 billion reported by all exempt organizations [8]. Over the 1992-2000 tax-year period, section 501(c)(3) nonprofit charitable organizations consistently accounted for more than half of total gross UBI reported annually by all organizations on Form 990-T. For 1991, they accounted for 49 percent of total gross UBI [9]. This section will concentrate on some of the reporting characteristics of nonprofit charitable organizations, including the extent to which their dollar shares of various sources of UBI contributed to the respective aggregate total amounts of UBI reported by all Form 990-T filers. The next section of this article contains a discussion of several figures that present data for 1991-2000 on gross UBI and other major financial items. The data are categorized by section 501(c)(3) organizations and selected other types of organizations, based on the IRC section that described their exemption.

The section 501(c)(3) population of Form 990-T filers typically is dominated by hospitals and medical centers; schools, colleges, universities, and related educational organizations; arts and cultural organizations, including museums and performing arts organizations; and human services organizations [10]. Many other types of nonprofit charitable organizations file Forms 990-T as well, and include, predominantly, organizations with activities related to the environment; animals; mental health; housing and shelter; recreation and sports; scientific and technological research; and religion.

According to SOI statistics for the 2000 tax year, 230,159 section 501(c)(3) nonprofit charitable organizations filed the informational Form 990 or Form 990-EZ [11]. About 5 percent of these section 501(c)(3) Form 990/990-EZ filers also filed Form 990-T to report unrelated business income and taxes.

The largest single source of unrelated business income reported by nonprofit charitable organizations for 2000 was gross profit (less loss) from sales and services. (Definitions of this and other sources of UBI listed in Figure B can be found in the Explanation of Selected Terms section of this article.) Not only did charities’ income from sales and services make up 62 percent of their total gross UBI, it also accounted for 73 percent of gross profit (less loss) from sales and services reported by all Form 990-T fliers.

The next largest UBI source reported by the charities was advertising income, which amounted to 46 percent of the total advertising income reported by all exempt organizations. Activities related to sales and services, and advertising, produced three-quarters of section 501(c)(3) charities’ gross UBI for Tax Year 2000. As emphasized by column (5) of Figure B, nonprofit charitable organizations also accounted for relatively large percentages of most of the remaining income sources shown in column (1).

Capital gain net income was one of the least important sources of unrelated business income for the charitable organizations. It amounted to less than 27 percent of capital gain net income reported by all organizations and made up only 4 percent of charities’ gross UBI. Typically, section 501(c)(3) nonprofits do not rely heavily on investments for producing income, both UBI and nontaxable mission-related income. Also, unless a nonprofit charity incurred debt to finance the purchase of an investment, the income produced from the investment generally was not taxable.

As originally reported in an SOI Bulletin article on 1999 Form 990-T data, it was discovered that fliers were over-reporting the amount of the “net operating loss deduction” (NOLD) [12]. (See the definition of Net Operating Loss Deduction in the Explanation of Selected Terms section of this article.) The NOLD should have been reported only when taxable income was positive, and it should have been limited to the amount of the taxable income. Rather than limiting the NOLD to the amount that was appropriate to offset any positive taxable income, many filers were reporting the entire amount of their net operating loss carryover from prior years’ activities. Reporting the entire amount of prior years’ net operating losses resulted in aggregate Form 990-T deficits that were extremely inflated.

Figure C illustrates the differences, for Tax Year 2000, between the amount of NOLD initially reported on Form 990-T and the correct amount of NOLD that should have been reported. The aggregate total of NOLD reported by all organizations amounted to $2,245.0 million, which was subsequently changed to the correct amount of $181.2 million. Seventy percent of the aggregate total of NOLD that was initially reported was attributable to section 501(c)(3) nonprofit chartable organizations. They reported an NOLD amount of $1,580.1 million, which was corrected to $125.4 million.

[FIGURE C OMITTED]

Corrections that were made to NOLD amounts did not affect positive unrelated business taxable income; they only reduced reported deficits. Therefore, the over-reporting of the NOLD did not reduce an organization’s tax liability, but it did drastically inflate deficits. The deficit amounts shown in Figure A and elsewhere in this article are after corrections to the reported NOLD amounts.

Fluctuations in Form 990-T Filings

Figures D, E, and F present a time-series of Form 990-T returns filed for 1991-2000. These figures, in addition to Figures G through J, discussed in the next section of this article, contain plotted lines for IRC section 501(c)(3) nonprofit charitable organization fliers and for other types of fliers tax-exempt under selected IRC sections. Each of Figures D through J also contains a broken plotted line for all fliers, except section 501(c)(3) organizations. This is done to give the reader a visual depiction of how section 501(c)(3) fliers compare to the rest of the filing population. Nonprofit charitable organizations generally command more public interest than any other type of organization granted exemption from income tax by the IRS.

[FIGURES D-J OMITTED]

Overall, the year-to-year fluctuations in Form 990-T filings shown in Figure D are attributable, in large part, to section 408(e) “traditional” Individual Retirement Account (IRA) trusts. (Roth IRA trusts, which are described in IRC section 408A, are included with “all fliers” in Figure D. Roth IRA trusts with gross UBI of $1,000 or more were required to File Form 990-T beginning with Tax Year 1998.) Excluding the section 408(e) IRA trusts, the number of returns filed annually by section 501(c)(3) nonprofit charitable organizations and other types of fliers represented in Figure D was fairly stable over the 10-year period [13].

Organizations described in IRC sections 408(e), 501(c)(3), 501(c)(6) (business leagues, chambers of commerce, and real estate boards), and 501(c)(7) (recreational and social clubs) consistently were the top four groups of Form 990-T fliers and accounted for 71 percent to 80 percent of annual filings during the 1991-2000 period. The section 501(c)(9) voluntary employees’ beneficiary organizations, which made up only 3 percent or less of Form 990-T fliers each year, are included in Figure D to highlight the fact that they filed only a small percentage of returns, but accounted for a much larger proportion of total unrelated business taxable income (UBTI) and unrelated business income tax (UBIT), as shown in Figures H and J, respectively.

Figure E portrays a similar time series for the Form 990-T filing population that had gross unrelated business income (UBI) of $10,000 or less. The filings of the population that had greater amounts of gross UBI are illustrated in Figure F. It is clearly evident that the fluctuations in aggregate filings shown in Figure D are driven by the section 408(e) IRA trusts that reported smaller amounts of gross UBI. The filing pattern of organizations with gross UBI over $10,000 fluctuated somewhat during the 1991-2000 period, but the relatively small number of returns filed by IRA trusts charted in Figure F had little impact on the filing pattern shown in Figure D for all section 408(e) organizations.

Partnership income consistently makes up a substantial portion of the smaller section 408(e) IRA trusts’ gross UBI. Sizeable gains or losses from partnerships can affect whether their total gross UBI is below or above the $1,000 threshold for filing Form 990-T [14]. Section 408(e) IRA trusts’ Form 990-T filings shown in Figure E rose or fell in tandem with the amount of partnership income received by these types of organizations. For instance, for 1998, the number of returns filed by section 408(e) IRA trusts with gross UBI of $10,000 or less grew by 105 percent, and their aggregate partnership income increased by 266 percent. For 1999, the number of returns filed and the amount of aggregate partnership income received by these types of organizations fell 32 percent and 52 percent, respectively.

A Decade of Form 990-T Financial Statistics, 1991-2000

Figures G through J contain respective time-series data for 1991-2000 on gross unrelated business income (UBI), total deductions, unrelated business taxable income (UBTI), and unrelated business income tax (UBIT). The graphs were constructed using constant dollar amounts [15]. The data in Figures G through J are segmented by all filers; Internal Revenue Code (IRC) section 501(c)(3) nonprofit charitable organizations; all filers, except section 501(c)(3) organizations; section 501(c)(6) business leagues, chambers of commerce, and real estate boards; section 501(c)(7) recreational and social clubs; section 501(c)(9) voluntary employees’ beneficiary associations (VEBA’s); and section 401(a) qualified pension, profit-sharing, and stock-bonus plans (hereinafter referred to as “pension trusts”).

Section 401(a) pension trusts are charted in place of section 408(e) IRA trusts in Figures G-J. Unlike the section 408(e) IRA trusts, the number of returns filed by pension trusts during the 1991-2000 period had very little influence on the pattern of aggregate Form 990-T filings shown in Figures D-F. Conversely, section 408(e) IRA trusts contributed relatively little to aggregate amounts of gross UBI, deductions, taxable income, and tax graphed in Figures G-J, while pension trusts had a notable impact on aggregate amounts of taxable income and tax shown in Figures I and J for selected years during the 1991-2000 period.

“Outliers,” returns that contained unique characteristics that were considered anomalous to the general population of returns filed for a given year, or returns that contained very large dollar amounts and were not filed consistently over the 10-year period, have been excluded from Figures G through J. For example, a tax-exempt association, which reported the largest amounts of gross UBI and total deductions for each of Tax Years 1991-1997, had its tax-exempt status terminated beginning with Tax Year 1998 [16]. The returns filed by this organization for 1991-1997 are not included in Figures G-J. In all, there were eight tax-exempt entities that filed at least one return during the 1991-2000 period that was considered to be an outlier. Any returns filed by these eight entities were excluded from the statistics used to construct the time series shown in Figures G-J.

Gross Unrelated Business Income (UBI)

As illustrated in Figure G, the gross UBI of section 501(c)(3) nonprofit charitable organizations grew steadily during Tax Years 1991-2000, nearly tripling over the 10-year period, from $1,638 million to $4,618 million, after adjustment for inflation and the removal of outliers. These organizations reported far more income from unrelated business activities annually than any other type of organization. After the nonprofit charitable organizations, the section 501(c)(6), 501(c)(7), and 501(c)(9) organizations have traditionally accounted for the next largest proportions of gross UBI.

The unrelated business income of section 501(c)(7) recreational and social clubs rose slightly and steadily each year during the 1991-2000 period. The same is true for the section 501(c)(6) business leagues, chambers of commerce, and real estate boards, except for a slight downturn for 1998. The relatively stable amounts of gross UBI reported by these organizations throughout the 1991-2000 period contrasts with the steep growth exhibited by the section 501(c)(3) charitable organizations.

Compared to other types of organizations included in Figure (3, section 401(a) and section 501(c)(9) filers’ respective annual amounts of gross UBI were much more variable throughout the period, and these two groups of filers carried much less weight than the section 501(c)(3) charities in shaping the pattern of annual changes in aggregate gross UBI over the 10-year period. Even though the section 401(a) trusts historically did not account for a large portion of total gross UBI, they, along with the charities and VEBA’s, figure prominently in the UBTI and UBIT time-series data contained in Figures I and J.

Total Deductions

The total deductions graph lines contained in Figure H for all filers, and for each of the sections 501(c)(3), 501(c)(6), and 501(c)(7) filers, form patterns very similar to those shown for the respective types of filers’ gross UBI shown in Figure G. This is not the case with the section 501(c)(9) VEBA trusts and section 401(a) pension trusts, however. Compared to these organizations’ annual gross UBI fluctuations presented in Figure G, the annual amounts of their total deductions plotted in Figure H remained relatively flat from 1991 to 2000.

Traditionally, tax-exempt trusts, by the nature of their operations, are more limited than most tax-exempt corporate entities in the types and amount of deductions they can claim to offset income, which is one factor in explaining the fairly stable expenses reported by the section 501(c)(9) and section 401(a) trusts. For example, trust investment portfolios are usually overseen by only one or two trust managers, so deductions for salaries and wages, a significant deduction item for many corporate nonprofits, are relatively small for exempt trusts. Their more limited deductions are part of the reason why the section 501(c)(9) VEBA trusts and section 401(a) pension trusts account for significantly greater proportions of aggregate UBTI and UBIT, depicted in Figures I and J, than they do of aggregate gross UBI and total deductions, depicted in Figures G and H. Other factors influencing Form 990-T fliers’ UBTI and UBIT are discussed in the next section on “Unrelated Business Taxable Income and Tax.”

Using Tax Year 2000 as an example, section 501(c)(9) VEBA trusts’ total deductions comprised only 5 percent of the aggregate total reported by all Form 990-T filers, and their gross UBI accounted for 11 percent of aggregate gross UBI. After offsetting their UBI with deductions, the VEBA’s accounted for 38 percent of UBTI and 36 percent of UBIT. In addition, the VEBA’s ratio of deductions to gross UBI was 44 percent. By comparison, the total-deductions-to-gross-UBI ratio for section 501(c)(3) charities was 101 percent for 2000.

A situation similar to that for the VEBA trusts exists for the section 401(a) pension trusts. For 2000, they accounted for less than 1 percent of total deductions and 2 percent of aggregate gross UBI, and their total-deductions-to-gross-UBI ratio for that year was 36 percent. After offsetting their UBI with deductions, the pension trusts accounted for 8 percent of UBTI and 9 percent of UBIT. For any given year during the 1991-2000 period, pension trusts accounted for no more than 1 percent of total deductions and less than 5 percent of gross UBI, while their proportionate shares of UBTI and UBIT were much greater. A particularly notable example of this is Tax Year 1995. Pension trusts accounted for well under 1 percent of total deductions and only 3 percent of aggregate gross UBI reported for 1995, but their shares of UBTI and UBIT were 20 percent and 23 percent, respectively.

Unrelated Business Taxable Income and Tax

The graphic displays of unrelated business taxable income (UBTI) and unrelated business income tax (UBIT) contained in Figures I and J are nearly identical, not surprising given the causal relationship between these two financial data items. Large proportions of aggregate UBTI and UBIT were attributable to section 501(c)(3) and 501(c)(9) organizations from 1991 to 2000, and section 401(a) organizations accounted for sizeable proportions for selected years throughout the period. Overall, sections 501(c)(6) and 501(c)(7) organizations accounted for more moderate shares of UBTI and UBIT, and did not play as significant a role in year-to-year changes in these financial data items as did the aforementioned organizations. Organizations’ deductions, applicable tax rates, and types of financial activities are all factors that influence their taxable incomes and tax liabilities reported on Form 990-T.

Influence of Organizations’ Deductions

As noted earlier, disparities in the amounts of deductions the different types of organizations are allowed to use to offset unrelated business income affect the amount of income that is ultimately taxable to the organizations. Tax Year 1997 is a good example to highlight this. In current 1977 dollars, section 501(c)(3) charities with (positive) UBTI reported $1,008.5 million of aggregate gross UBI and $731.5 million of total deductions. The section 501(c)(9) VEBA trusts with UBTI reported $508.6 million of aggregate gross UBI (about half that reported by the nonprofit charities) and only $52.7 million of total deductions (less than one-tenth of that reported by the charities). As a result, the taxable income of the charities for 1997 was $276.9 million, while that for the VEBA’s was $455.8 million. In addition to the disparity between the total-deductions-to-gross-UBI ratios of these two types of organizations (73 percent versus 10 percent), the tax rates applicable to each type also come into play.

Influence of Organizations’ Tax Rates

Most section 501(c)(3) organizations are incorporated, and are thus subject to U.S. corporate tax rules and marginal tax rates. Virtually all section 501(c)(9) organizations are trusts, which are subject to different tax rules, depending on the type of trust, and are generally taxed at individual (single status) marginal tax rates. Once again using Tax Year 1997 as an example, the minimum tax rate for trusts was 15 percent, which was applied to UBTI of less than $1,650. For corporations, the minimum 15-percent tax rate applied to a much larger UBTI threshold–less than $50,000. The maximum tax rates for trusts and corporations were, respectively, 39.6 percent, applied to trust taxable income over $6,100, and 35 percent, applied to corporate taxable income over $18,333,333.

To emphasize the effect of these contrasting tax rates, a tax-exempt trust with $40,000 of UBTI would be liable for $15,840 of unrelated business income tax, compared to a tax-exempt corporation with the same amount of UBTI, which would be liable for only $6,000 of unrelated business income tax. A similar situation exists for the section 401(a) pension trusts, which, like the VEBA’s, are subject to higher marginal tax rates than corporate entities.

Influence of Organizations’ Types of Financial Activities

The types of financial activities in which organizations are engaged, and which produce their various types of unrelated business income, also have great impact on annual amounts of unrelated business taxable income. Volatility of financial markets appears to be linked to some of the annual increases and decreases in taxable income and, therefore, the tax reported by section 501(c)(9) and section 401(a) trust entities for 1991-2000, as represented in Figures I and J [17]. Since each of these types of entities’ main source of income is investments, the annual amounts of total gross UBI that they report are linked more closely to market fluctuations than gross UBI amounts reported by many other types of organizations, most notably the section 501(c)(3) nonprofit charitable organizations.

For example, the two main sources of gross unrelated business income traditionally reported on the Form 990-T income statement by section 501(c)(9) VEBA’s are investment income (less loss) and capital gain net income. For the 401(a) pension trusts, the two largest income sources are combined partnership and S corporation income, and capital gain net income. The production of these types of income can be directly influenced by financial markets. In contrast, the section 501(c)(3) nonprofit charitable organizations reported gross profit (less loss) from sales and services, and advertising income as their two largest sources of gross UBI. A general economic downturn could unfavorably affect the demand for section 501(c)(3) unrelated business services, but these organizations are fairly well protected from any adverse effects caused by poor financial market performance in a given year.

The decrease in the section 501 (c)(9) associations’ UBTI shown in Figure I for 1994 may have occurred, in part, due to overall poor stock market performance experienced during that year. In 1994 current dollars, the VEBA’s reported a 74-percent decline in capital gain net income, which, coupled with a small, 3-percent increase in investment income, was a contributing factor in the 36-percent decrease in UBTI.

For Tax Year 1995, a year in which stock performance appreciably rebounded, VEBA’s reported more than a six-fold increase in capital gains on Form 990-T. Taxable income reported by VEBA’s continued to increase through 1995-1997, all years in which annual rates of returns on stock funds grew consistently. The taxable income and income tax of VEBA’s dropped substantially from 1997 to 1998. Generally, returns on stock investments were relatively good for 1998, but third-quarter prices dropped sharply and then rose rapidly through the remainder of 1998, which may have influenced investment management decisions. Investment income of VEBA’s increased less than 1 percent and capital gain net income decreased 15 percent for 1998.

The aggregate unrelated business taxable income of section 401(a) pension trusts increased continuously from 1991 to 1996 and then dropped for 1997, as indicated in Figure I. Their UBTI increased over the next 2 years, but fell sharply by the end of 2000. Fluctuations in net income from partnerships, capital gains, and, to some extent, S corporations largely affected pension trusts’ annual aggregate amounts of UBTI. Based on current dollars, the partnership net income and capital gain net income of Form 990-T pension trust fliers decreased 48 percent and 6 percent, respectively, for 1997. Because of a tax-law change affecting certain exempt organizations’ ownership of S corporation stock, beginning with Tax Year 1998, pension trusts were required to report a combined amount of partnership and S corporation net income on Form 990-T [18]. For 1998, pension trusts’ combined net income from partnerships and S corporations rose 58 percent over the 1997 partnership (only) net income amount, while capital gain net income declined once again, by 12 percent. For 1999, partnership and S corporation net income increased slightly, and capital gain net income grew by 140 percent. However, income from each of these sources fell considerably for 2000, with respective decreases of 20 percent and 63 percent. Market conditions became relatively unstable during 2000, with stock prices declining significantly by year’s end.

UBTI and UBIT of IRC Section 501(c)(3) Organizations

In terms of UBTI and UBIT charted in Figures I and J, the most notable years for the section 501(c)(3) nonprofit charitable organizations were Tax Years 1999 and 2000, during which their unrelated business taxable income and tax amounts increased by large percentages. In current dollars, UBTI increased by 58 percent between 1998 and 1999, and another 21 percent between 1999 and 2000. UBIT percentage increases for 1999 and 2000 were 65 percent and 24 percent, respectively.

The gross UBI of section 501(c)(3) charities with taxable income for 1999 rose 24 percent, but their total deductions rose at a much lower rate, only 12 percent, which resulted in a large increase in the amount of income that was taxable. Charities with UBTI reported 11 percent more in aggregate gross profit (less loss) from sales and services, which made up 42 percent of the gross UBI they reported for 1999. Capital gain net income (11 percent of taxable charities’ 1999 gross UBI) more than tripled between 1998 and 1999, while combined partnership and S corporation income (14 percent of charities’ 1999 gross UBI) increased by 32 percent.

For 2000, the gross UBI and total deductions of charities with taxable income increased at about the same rate, 18 percent and 17 percent, respectively, and the amount of their total deductions was 35 percent less than the amount of their total gross UBI. Large percentage increases in the amounts of gross profit (less loss) from sales and services, capital gain net income, combined partnership and S corporation income, debt-financed income, income from controlled organizations, and advertising income reported by taxable charities for 2000 were key contributors to the growth in gross UBI for that year. All of these income sources increased by 30 percent or more between 1999 and 2000.

Summary

Nonprofit organizations filed an estimated 38,567 Forms 990-T, Exempt Organization Business Income Tax Returns, for Tax Year 2000. Overall, organizations reporting “unrelated business income” (UBI) filed 9 percent fewer returns for 2000, the second consecutive tax year that the number of filings fell. Returns with gross UBI of $10,000 or less, the threshold for being exempted from filing return schedules and reporting detailed information on deductions, decreased by 15 percent; those with higher amounts of gross UBI decreased by 4 percent. After offsetting $8.4 billion of total gross UBI with $7.7 billion of deductions, the resulting unrelated business taxable income (less deficit) for 2000 was $0.7 billion. Aggregate unrelated business (positive) taxable income (UBTI) and unrelated business income tax (UBIT) were $1.4 billion and $0.4 billion, respectively.

Overall, there were significant year-to-year fluctuations in the number of Form 990-T filings from 1991-2000. These fluctuations were attributable, in large part, to Internal Revenue Code section 408(e) Individual Retirement Account (IRA) trusts. The number of returns filed annually by section 501(c)(3) nonprofit charitable organizations and all remaining types of Form 990-T fliers, other than section 408(e) IRA trusts, was fairly stable over the 10-year period.

The gross UBI of section 501(c)(3) nonprofit charitable organizations grew steadily throughout Tax Years 1991-2000, nearly tripling, from $1.6 billion to $4.6 billion, after adjustment for inflation and the removal of data for “outliers.” (Outliers included returns with characteristics considered to be anomalous to the general population of returns filed for a given year, or returns with very large dollar amounts that were not filed for each year during the 10-year period.) Section 501(c)(3) organizations annually reported far more income from unrelated business activities than any other type of organization. The largest single source of unrelated business income reported by nonprofit charitable organizations for 2000 was gross profit (less loss) from sales and services. Not only did charities’ income from sales and services make up 62 percent of their total gross UBI, it also accounted for 73 percent of gross profit (less loss) from sales and services reported by all Form 990-T fliers.

After the nonprofit charitable organizations, the section 501 (c)(6) chambers of commerce, business leagues, and real estate boards; the section 501(c)(7) recreational and social clubs; and the section 501(c)(9) voluntary employees’ beneficiary associations (VEBA’s) traditionally have accounted for the next largest proportions of gross UBI. The section 401 (a) qualified pension, profit-sharing, and stockbonus plan trusts and section 501(c)(9) VEBA trusts historically account for relatively large portions of unrelated business taxable income and unrelated business income tax and, thus, figure prominently in each of the UBTI and UBIT time series presented for Tax Years 1991-2000.

Data Sources and Limitations

The Tax Year 1991-2000 statistics in this article are based on annual samples of Forms 990-T, Exempt Organization Business Income Tax Returns. Separate articles for 1991-1999 were published in previous quarterly issues of the SOI Bulletin, which date from Spring 1995 through Spring 2003, respectively. Selected data from 1991-1999, along with the 2000 data, have been presented in this current article to provide a review of the latest 10-year period for which studies have been completed. Because a discussion of data sources and limitations was included in each of the previous articles for 1991-1999, this section will focus only on the most recently completed study of Tax Year 2000 Forms 990-T.

The 2000 Form 990-T study incorporated a two-stage sample design consisting of a stratified random sample and a special “integrated” sample. The integrated sample was designed to gather information on “related” (tax-exempt) and “unrelated” (taxable) income and expenses for section 501(c)(3) organizations that filed both Form 990, Return of Organization Exempt from Income Tax (or Form 990-EZ, the short-form version of this information return), and Form 990-T. This integrated sampling program ensured that the Statistics of Income sample of Forms 990-T included any unrelated business income tax returns (with gross UBI of $1,000 or more) filed by organizations whose Form 990 or Form 990-EZ information returns were selected for the separate sample of section 501(c)(3) nonprofit charitable organizations. Organizations exempt under other Code sections were not subjected to the integrated sampling program.

The Form 990-T returns were initially divided into strata, based on gross UBI, and selected using Bemouli sampling. Section 501(c)(3) returns not selected randomly were then matched to returns in the Forms 990/990-EZ sample. These matched returns, along with any randomly selected Forms 990-T that also had counterparts in the Forms 990/ 990-EZ sample, formed the “integrated” IRC section 501 (c)(3) portion of the Form 990-T sample [19].

As shown in Figure K, the designed sampling rates ranged from a minimum of 3 percent (Form 990-T gross UBI less than $20,000, with either no Form 990/990-EZ match or a match to a Code section 501(c)(3) From 990/990-EZ with total assets under $1,000,000) to a maximum of 100 percent (either Form 990-T gross UBI of $300,000 or more, or Form 990-T with any amount of gross UBI and a match to a section 501(c)(3) Form 990 with total assets of $30,000,000 or more). Other Forms 990-T were selected at rates ranging from 6 percent to 45 percent. In addition to designed sample rates, Figure K contains population counts, sample counts, and achieved sample rates, by size of gross unrelated business income reported on Form 990-T and size of total assets reported on Form 990 or Form 990-EZ.

The population from which the 2000 Form 990-T sample was drawn consisted of Form 990-T records posted to the IRS Business Master File system during 2001 and2002. Returns filed after Calendar Year 2002 were not included in the sample. The returns in the sample were stratified based on the size of gross unrelated business income (UBI). A sample of 7,815 returns was selected from a population of 38,839. After excluding returns that were selected for the sample but later rejected, the resulting sample size was 7,762 returns, and the estimated population size was 38,567. Rejected returns included those that had gross UBI below the $1,000 filing threshold; were filed only to claim a refund or report the “proxy tax”; were filed for a part-year accounting period for 2000, and a full-year return was also filed for that year; or were filed for a part-year accounting period that began in a year other than 2000. For example, a final return filed for the short period of January 2001-June 2001 may have been initially selected for the 2000 sample based on the criterion of an accounting period that ended between December 2000 and November 2001, but it was later rejected because, in actuality, it was a Tax Year 2001 return.

The information presented in this article was obtained from returns as originally filed with the Internal Revenue Service. The data were subjected to comprehensive testing and correction procedures in order to improve statistical reliability and validity. In most cases, due to time constraints, changes made to the original return as a result of administrative processing, audit procedures, or a taxpayer amendment were not incorporated into the data base.

Because the data are based on a sample, they are subject to sampling error. In order to use these statistics properly, the magnitude of the sampling error, measured by the coefficient of variation (CV), should be taken into account. Figure L shows CV’s for selected financial data. CV’s are not shown for returns with gross UBI of $300,000 or more because they were sampled at a 100-percent rate and, therefore, are not subject to sampling variability. A discussion of the reliability of estimates based on samples and methods for evaluating both the magnitude of sampling and nonsampling error and the precision of sample estimates can be found in the general Appendix, located near the back of this issue of the SOI Bulletin.

Explanation of Selected Terms

In some of the following explanations, tax-exempt organizations are cited by the Internal Revenue Code section under which they are described. The various types of tax-exempt organizations subject to the unrelated business income tax provisions are described by Code section in the Appendix to this article. In addition to helping the reader understand the terms contained in the written content of this article, these explanations are also helpful when using Tables 1 through 7, at the end of the article.

Advertising Income.–Gross income realized by a tax-exempt organization from the sale of advertising in a periodical was gross income from an unrelated trade or business activity involving the “exploitation of an exempt activity,” namely, the circulation and readership of the periodical developed by producing and distributing the readership content of that periodical. Advertising income was reported separately from other types of “exploited exempt activity income.” (See the explanation of Exploited Exempt Activity Income.) Internal Revenue Code section 501(c)(7), (9), and (17) organizations reported gross advertising income, as well as other types of “exploited exempt activity income,” as part of gross receipts from sales and services. All other organizations reported this income separately.

Capital Gain Net Income.–Generally, organizations required to file Form 990-T (except organizations tax-exempt under Internal Revenue Code sections 501(c)(7), (9), and (17)) were not taxed on net gains from the sale, exchange, or other disposition of property. However, capital gain net income 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. Also, any gain or loss passed through from a partnership or S corporation, or any gain or loss on the disposition of S corporation stock by a “qualified tax-exempt” (defined in the explanation of Income (Less Loss) from Partnerships and S corporations), was taxed as a capital gain or loss. (See the explanation of Investment Income (Less Loss) for information regarding investment income of section 501(c)(7), (9), and (17) organizations.)

Contributions.–To the extent permissible under the Internal Revenue Code, a deduction was allowed for contributions or gifts actually paid within the tax year to, or for the use of, another entity that was a charitable or Governmental organization described in Code section 170(c). A tax-exempt corporation was allowed a deduction for charitable contributions up to 10 percent of its unrelated business taxable income (UBTI) computed without regard to the deduction for contributions. A tax-exempt trust was generally allowed a deduction for charitable contributions under the rules applicable to individual taxpayers, except the limit on the deduction was determined in relation to UBTI computed without regard to the contributions deduction, rather than in relation to adjusted gross income. Contributions in excess of the respective corporate or trust limitations may be carried over to the next 5 taxable years, subject to certain rules. The contributions deduction was allowed whether or not directly connected with the carrying on of a trade or business.

Cost of Sales and Services.–Cost of sales and services was reported as a lump-sum total, but may have included depreciation, salaries and wages, and certain other types of deductible items. For this reason, the total amount shown for some of the separately reported components of total deductions, such as “salaries and wages,” may be understated. Cost of sales and services was subtracted from gross receipts from sales and services in computing gross profit (less loss) from sales and services, which is a component of gross unrelated business income (UBI). Because Form 990-T filing requirements are based on gross UBI, and cost of sales and services is factored into the computation of gross income, the deduction for cost of sales and services is reported in the gross income section of Form 990-T, not the deductions section.

Deductions Directly Connected With Unrelated Business Income.–These were deductions allowed in computing net income, if they otherwise qualified as income tax deductions under the Internal Revenue Code and if they had a “proximate and primary” relationship to carrying on an unrelated trade or business. Allowable deductions included those allocable to rental of personal property; those allocable to unrelated debt-financed income; those allocable to investment income of Internal Revenue Code section 501(c)(7), (9), and (17) organizations; those allocable to interest, annuities, royalties, and rents received from “controlled organizations” (see definition of Income from Controlled Organizations); those allocable to “exploited exempt activity income” other than advertising; direct advertising costs; compensation of officers, directors, and trustees; salaries and wages; repairs and maintenance; bad debts; interest; taxes and licenses; depreciation (unless deducted elsewhere); depletion; contributions to deferred compensation plans; contributions to employee benefit plans; the “net operating loss deduction”; and “other deductions.” Tax-exempt organizations with gross unrelated business income (UBI) above $10,000 were required to report each deduction component separately. Organizations with gross UBI between $1,000 (the filing threshold) and $10,000 reported a single total of the first five types of directly-connected expenses listed above (those described as “allocable to”) and a single total for all other types of deductions (both deductions directly connected with UBI and those not directly connected, each defined elsewhere in this section), except for two items that were required to be reported separately: the “net operating loss deduction” (directly connected) and the “specific deduction” (not directly connected), both also defined below.

Deductions Not Directly Connected With Unrelated Business Income.–The component deductions were “set-asides,” “excess exempt expenses,” charitable contributions, and the “specific deduction.” The specific deduction was reported, when applicable, by all organizations with positive taxable income; the other types of deductions not directly connected with UBI were reported separately, when applicable, only by tax-exempt organizations with gross UBI above $10,000. (See, also, the explanations of Set-Asides, Excess Exempt Expenses, Contributions, and the Specific Deduction.)

Excess Exempt Expenses.–The two types of “excess” expenses allowed as deductions from unrelated business income were (1) excess exempt expenses attributable to commercial exploitation of exempt activities, and (2) excess exempt expenses attributable to advertising income. In the case of “exploited” exempt activity income (see the explanation of Exploited Exempt Activity Income, Except Advertising, below), if the expenses of the organization’s exempt activity exceeded the income from the exempt activity, then the excess expenses could be used to offset any positive net unrelated business income produced from exploiting the exempt activity, to the extent that it did not result in a loss. Excess expenses of a commercially exploited exempt activity could not be used to offset income from another type of unrelated business activity if the unrelated activity did not exploit that particular exempt activity. In the case of excess exempt expenses attributable to advertising income, if the expenses attributable to producing and distributing the readership content of a periodical exceeded the circulation income, then the excess of readership costs over circulation income could be used to offset any net gain from advertising (gross advertising income less direct advertising costs), to the extent that it did not result in a loss.

Exploited Exempt Activity Income, Except Advertising.–In some cases, exempt activities create goodwill or other intangibles that are capable of being exploited in a commercial manner. When an organization exploited such an intangible in commercial activities that did not contribute importantly to the accomplishment of an exempt purpose, the income it produced was gross income from an unrelated trade or business. An example of this type of activity would be an exempt scientific organization with an excellent reputation in the field of biological research that exploits its reputation regularly by selling endorsements of laboratory equipment to manufacturers. Endorsing laboratory equipment would not have contributed importantly to the accomplishment of any purpose for which tax exemption was granted to the organization. Accordingly, the income from selling such endorsements is gross unrelated business income. Exploited exempt activity income from advertising was reported separately from other types of exploited exempt activity income (see the explanation of Advertising Income). Internal Revenue Code section 501(c)(7), (9), and (17) organizations reported income from exploited exempt activities as part of gross receipts from sales and services. All other organizations reported this income separately.

Gross Profit (Less Loss) from Sales and Services.–This was the gross profit (less loss) from any unrelated trade or business regularly carried on that involved the sale of goods or performance of services. It did not include income from unrelated business activities that were required to be reported separately on any of the tax form’s supporting schedules. For example, an Internal Revenue Code section 501(c)(7) social club would include gross restaurant and bar receipts from nonmembers in the calculation of gross profit (less loss) from sales and services, but would report its investment income from sales of securities on the required supporting schedule. Gross profit (less loss) from sales and services is computed as gross receipts from sales or services, less returns and allowances, minus cost of sales and services.

Gross Unrelated Business Income (UBI).–This was the total gross unrelated business income prior to reduction by allowable deductions used in computing unrelated business taxable income. All organizations were required to report detailed sources of gross UBI. The components of gross UBI were gross profit (less loss) from sales and services; capital gain net income; net gain (less loss) from sales of noncapital assets; net capital loss deduction (trusts only); income (less loss) from partnerships and S corporations; rental income; unrelated debt-financed income; investment income (less loss) of Internal Revenue Code section 501(c)(7), (9), and (17) organizations; income (annuities, interest, rents, and royalties) from controlled organizations; “exploited exempt activity” income, except advertising; advertising income; and “other” income (less loss). (For an explanation of these sources of income, see the separate explanations of each component.)

A tax-exempt organization’s income was treated as unrelated business income if it was from a trade or business that was regularly carried on by the organization and that was not substantially related to the performance of the organization’s exempt purpose or function (other than that the organization needed the profits derived from the unrelated activity). The term “trade or business” generally comprised any activities carried on for the production of income from selling goods or performing services. These activities did not lose their identity as trades or businesses merely because they were carried on within a larger aggregate of similar activities or within a larger complex of other endeavors that may, or may not, have been related to the exempt purposes of the organization. For example, soliciting, selling, or publishing commercial advertising is identified as a trade or business even though the advertising is published in an exempt organization’s periodical that contains editorial matter related to the organization’s exempt purpose.

Income from Controlled Organizations.–When an exempt organization controls another organization, the entire amount of gross annuities, interest, rents, and royalties (termed “specified payments”) received from the controlled organization are included in the gross UBI of the controlling organization, to the extent that the specified payments were claimed as a deduction from the controlled organization’s own UBI (in the case of an exempt controlled organization) or the “equivalent” of UBI (in the case of a nonexempt controlled organization). The equivalent of UBI was computed as if the nonexempt controlled organization were exempt and had the same exempt purpose as the controlling organization. “Control” meant: (a) for a stock corporation, the ownership (by vote or value) of more than 50 percent of the stock; (b) for a partnership, ownership of more than 50 percent of the profits or capital interests; or (c) for any other organization, ownership of more than 50 percent of the beneficial interests. All deductions “directly connected” with a Form 990-T flier’s gross controlled-organization income were allowed. The rules for debt-financed property did not apply to passive income (generally, investment income) from controlled organizations. (See the definition of Unrelated Debt-Financed Income.)

Income (Less Loss) from Partnerships and S Corporations.–If an organization was a partner in any partnership that carried on an unrelated trade or business, this income item included the organization’s share of partnership gross unrelated business income less its share of partnership deductions that were directly connected with the unrelated income. If an organization was a “qualified tax-exempt” that held stock in an S corporation, this income item included the income or loss from the stock interest. The stock interest was treated as an unrelated trade or business, and all items of income, loss, or deduction were taken into account in computing unrelated business taxable income. A “qualified tax-exempt” was an organization described in Internal Revenue Code section 40 l(a) (qualified stock bonus, pension, or profit-sharing plan) or section 501(c)(3), and exempt from tax under section 501(a).

Investment Income (Less Loss).–This income was reported only by organizations exempt under Internal Revenue Code sections 501(c)(7), (9), and (17) and included such income as gross unrelated debt-financed income, gross income from the ownership or sale of securities, and set-asides deducted from investment income in previous years that were subsequently used for a purpose other than that for which a deduction was allowed. (See, also, the explanation of Set-Asides.) All gross rents (except those that were exempt-function income) of section 501 (c)(7), (9), and (17) organizations were treated as unrelated business income and were reported as “rental income.” Organizations exempt under sections other than 501(c)(7), (9), and (17) did not report “investment income (less loss).” Generally, these organizations’ investment income (dividends, interest, rents, and annuities) and royalty income were not taxed as unrelated business income, unless it was income, other than dividends, from a controlled organization or debt-financed income, or the rents were of the type described in the explanation of rental income. (See explanations of Income from Controlled Organizations, Rental Income, and Unrelated 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. (Tax-exempt corporations were not allowed to deduct any excesses of capital losses over capital gains.) Tax-exempt trusts reported the net capital loss deduction on Form 990-T as a component of gross unrelated business income, and it was subtracted when computing total gross UBL

Net Gain (Less Loss), Sales of Noncapital Assets.–This was the gain or loss from the sale or exchange of business property, as reported on Form 4797, Sales of Business Property. Property other than capital assets generally included property of a business nature, in contrast to personal and investment properties, which were capital assets.

Net Operating Loss Deduction (NOLD).–The net operating loss carryover or carryback (as described in Internal Revenue Code section 172) was allowed as a deduction (limited to the current-year excess of receipts over deductions, prior to applying the NOLD) in computing unrelated business taxable income. However, the net operating loss carryover or carryback (allowed only to or from a tax year for which the organization was subject to tax on unrelated business income) was determined without taking into account any amount of exempt-function income or deductions that had been excluded from the computation of unrelated business taxable income. A “net operating loss” represented the excess of deductions over receipts for a specified year for which an organization reported an overall deficit from its unrelated trade or business activities. The net operating loss deduction statistics in this article represent only net operating loss carryovers from prior years because carrybacks from future years would be reported in a later year on an amended return, not on the return as initially filed (which served as the basis for the statistics).

Other Deductions.–This included all types of unrelated business deductions that were not specifically required to be reported elsewhere on the tax return. Examples are fees for accounting, legal, consulting, or financial management services; insurance costs (if not for employee-related benefits); equipment costs; mailing costs; office expenses, such as janitorial services, supplies, or security services; rent; travel expenses; educational expenses; and utilities.

Other Income (Less Loss).–This included all types of unrelated business income that were not specifically required to be reported elsewhere on the tax return. Examples are insurance benefit fees; member support fees; commissions; returned contributions that were deducted in prior years; income from insurance activities that was not properly set aside in prior years; recoveries of bad debts; and refunds of State or local government 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 4 organization failed to notify its members regarding their shares of dues to which nondeductible lobbying and political expenditures were allocable, or if the notice did not include the entire amount of dues that was allocable, then the proxy tax was imposed on the organization. It was computed as 35 percent of the aggregate amount of nondeductible lobbying expenditures that was not included in the notices sent to the organization’s members. The proxy tax was required to be reported on Form 990-T and was included in total tax; however, there was no connection between the proxy tax and the taxation of income from an organization’s unrelated business activities.

Rental Income.–For organizations tax exempt under Internal Revenue Code sections other than 501(c)(7), (9), and (17), this was the amount of(I) gross rents from personal property (e.g., computer equipment or furniture) leased with real property, if the rental income from the personal property was more than 10 percent, but not more than 50 percent, of the total rents from all leased property; or (2) gross rents from both real property and personal property leased with real property if the personal property was more than 50 percent of the total rents from all leased property. Except for the second situation covered above, gross rents from real property were generally excluded in computing unrelated business taxable income. In addition, gross rents from personal property that did not exceed 10 percent of the total rents from all leased property were excluded (and not included in gross UBI). Any rents not covered by the explanation of “rental income” had to be considered in terms of their taxability as unrelated business income from controlled organizations or unrelated debt-financed income, in that order. For organizations tax-exempt under sections 501(c)(7), (9), and (17), rental income included all gross rents (except those that were exempt-function income), with no exclusions. (See explanations of Income from Controlled Organizations and Unrelated Debt-Financed Income.)

Set-Asides.–This deduction from investment income was allowed to social and recreational clubs (Internal Revenue Code section 501(c)(7)), voluntary employees’ beneficiary associations (section 501(c)(9)), and supplemental unemployment benefit trusts (section 501(c)(17)). The deduction was equal to the amount of passive income (generally, investment income) that these organizations set aside (1) to be used for charitable purposes or (2) to provide payment of life, health, accident, or other insurance benefits (section 501 (c)(9) and (17) organizations only). However, any amounts set aside that exceeded the “qualified asset account” limit, as figured under section 419A, were not allowed as a deduction from unrelated business investment income; they were treated as taxable investment income. A 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 $1,000 or the amount of positive taxable income, whichever was less. The amount deducted was considered “not directly connected” with gross unrelated business income and was allowed to all organizations that had positive taxable income after all other types of deductions were taken. This deduction provided the equivalent benefit of the $1,000 gross unrelated business income filing threshold under which some organizations were exempted from filing a return and paying the unrelated business income tax.

Total Deductions.–Total deductions included both deductions reported on the main part of Form 990-T and expense items reported on any of six supporting schedules, which were also part of the tax form. It excluded cost of sales and services ($2.3 billion for 2000), which was subtracted from gross receipts from sales and services in computing gross profit (less loss) from sales and services, which is a component of gross unrelated business income (UBI). (See the explanation of Cost of Sales and Services.)

Total Tax.–Total tax was unrelated business income tax less the foreign tax credit, general business credit, credit for prior-year minimum tax, and other allowable credits, plus the “proxy tax” on certain lobbying and political expenditures, the tax from recomputing certain prior-year credits (“recapture taxes”), and the “alternative minimum tax.”

Unrelated Business Income (UBI).–See definition of Gross Unrelated Business Income (UBI).

Unrelated Business Income Tax.–This was the tax imposed on unrelated business taxable income. It was determined based on the regular corporate or trust income tax rates that were in effect for the 2000 Tax Year, as shown in the following schedules.

Unrelated Business Taxable Income (Less Deficit).–This was gross income derived from any unrelated trade or business regularly carried on by an exempt organization, less deductions directly connected with carrying on the trade or business and less other allowable deductions not directly connected. On a return-by-return basis, the result of this computation was either positive (unrelated business taxable income), negative (deficit), or zero. Taxable income was subject to the unrelated business income tax. (See, also, explanations of Deductions Directly Connected With Unrelated Business Income and Deductions Not Directly Connected With Unrelated Business Income.)

Unrelated Debt-Financed Income.–Gross income from investment property for which acquisition indebtedness was outstanding at any time during the tax year was subject to the unrelated business income (UBI) tax. The percentage of investment income to be included as gross UBI was proportional to the ratio of average acquisition indebtedness to the average adjusted basis of the property. Various types of passive income (generally, investment income) were considered to be unrelated debt-financed income, but only if the income arose from property acquired or improved with borrowed funds and if the production of income was unrelated to the organization’s tax-exempt purpose. When any property held for the production of income by an organization was disposed of at a gain during the tax year, and there was acquisition indebtedness outstanding at any time during the 12-month period prior to the date of disposition, the property was considered 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 (generally, investment income) from controlled organizations, and other amounts that were otherwise included in computing unrelated business taxable income. Internal Revenue Code section 501 (c)(7), (9), and (17) organizations reported all debt-financed income as “Investment Income (Less Loss).” All other organizations reported debt-financed income separately.

Appendix

Types of Tax-Exempt Organizations Subject to the Unrelated Business

Income Tax Provisions, by Internal Revenue Code Section

Code

section Description of organization General nature of activities

220(e) Archer Medical Savings Fiduciary agent for

Accounts (MSA’s) accounts used in

conjunction with high-

deductible health plans to

save funds for future

medical expenses

401(a) Qualified pension, profit- Fiduciary agent for

sharing, or stock bonus pension, profit-sharing, or

plans stock bonus plans

408(e) Traditional Individual Fiduciary agent for

Retirement Accounts (IRA’s) retirement funds

408A Roth Individual Retirement Fiduciary agent for retire-

Accounts (IRA’s) ment funds; subject to same

rules as traditional IRA’s,

except contributions are

not tax deductible and

qualified distributions are

tax free

501(c)(2) Title-holding corporations Holding title to property

for exempt organizations for exempt organizations

(3) Religious, educational, Activities of a nature

charitable, scientific, or implied by the description

literary organizations; of the class of organization

testing for public safety

organizations. Also,

organizations preventing

cruelty to children or

animals, or fostering

national or international

amateur sports competition

(4) Civic leagues, social wel- Promotion of community

fare organizations, and welfare and activities from

local associations of which net earnings are

employees devoted to charitable,

educational, or recreational

purposes

(5) Labor, agricultural, and Educational or instructive

horticultural organizations groups whose purpose is

to improve conditions of

work, products, and

efficiency

(6) Business leagues, chambers Improving conditions in one

of commerce, real estate or more lines of business

boards, and like

organizations

(7) Social and recreational Pleasure, recreation, and

clubs social activities

(8) Fraternal beneficiary Lodges providing for

societies and associations payment of life, health,

accident, or other insurance

benefits to members

(9) Voluntary employees’ Providing for payment of

beneficiary associations life, health, accident, or

(including Federal other insurance benefits to

employees’ voluntary members

beneficiary associations

formerly covered by

section 501(c)(10))

(10) Domestic fraternal benefi- Lodges, societies, or

ciary societies and associations devoting their

associations net earnings to charitable,

fraternal, and other

specified purposes, without

life, health, or accident

insurance benefits to

members

(11) Teachers’ retirement fund Fiduciary associations

associations providing for payment of

retirement benefits

501(c)(12) Benevolent life insurance Activities of a mutually

associations, mutual ditch beneficial nature implied

or irrigation companies, by the description of the

mutual or cooperative class of organization

telephone companies, and

like organizations

(13) Cemetery companies Arranging for burials and

incidental related

activities

(14) State-chartered credit Providing loans to members

unions and mutual insurance or providing insurance

or reserve funds of, or reserve funds for,

shares or deposits in

certain banks or loan

associations

(15) Mutual insurance companies Providing insurance to

or associations other than members, substantially at

life, if written premiums cost

for the year do not exceed

$350,000

(16) Corporations organized to Financing crop operations

finance crop operations in conjunction with

activities of a marketing

or purchasing association

(17) Supplemental unemployment Fiduciary agent for payment

benefit trusts of supplemental unemploy-

ment compensation benefits

(18) Employee-funded pension Providing for payments of

trusts (created before June benefits under a pension

25, 1959 plan funded by employees

(19) Posts or organizations of Providing services to

past or present members of veterans or their

the armed forces dependents; advocacy of

veteran’s issues; and

promotion of patriotism and

community service programs

(21) Black Lung Benefit Trusts Created by coal mine

operators to satisfy their

liability for disability or

death due to black lung

disease

(22) Withdrawal liability Providing funds to meet the

payment funds liability of employers

withdrawing from a

multi-employer pension fund

(23) Associations of past and Providing insurance and

present members of the other benefits to veterans

armed forces founded before or their dependents

1880

(24) Trusts described in section Providing funds for

4049 of the Employee employee retirement income

Retirement Income Security

Act of 1974

(25) Title-holding corporations Acquiring real property and

or trusts with no more than remitting all income

35 shareholders or benefi- earned from such property

ciaries and only one class to one or more exempt

of stock or beneficial organizations; pension,

interest profit-sharing, or stock

bonus plans; or governmental

units

501(c)(26) State-sponsored health Providing coverage for

plans medical care on a not-for-

profit basis to residents

with pre-existing medical

conditions that resulted in

denied or exorbitantly

priced traditional medical

care coverage

(27) State-sponsored workers’ Pooled employers’ funds

compensation plans providing reimbursements

to employees for losses

arising under workers’

compensation acts; also,

State-created, -operated,

and -controlled organiza-

tions providing workers’

compensation insurance to

employers

529(a) Qualified State Tuition State- and agency-maintained

Plans plans that allow

individuals to purchase

credits or certificates, or

make contributions to an

account, to pay for future

educational expenses

530(a) Coverdall Education Savings Fiduciary agent for

Accounts accounts created for the

purpose of paying qualified

higher education expenses

of a designated beneficiary

NOTE: Corporations that are organized under an Act of Congress, and

are instrumentalities of the United States, described in section

501(c)(1) of the Internal Revenue Code, are not subject to unrelated

business income taxation. Prepaid legal service funds, previously

described in section 501(c)(20) of the Internal Revenue Code, were no

longer tax exempt effective with tax years beginning after June 30,

1992.

Tax Rates for Corporations

Amount of unrelated

business taxable income is:

Of the

But not amount

Over– over– Tax is: over–

$0 $50,000 15% $0

50,000 75,000 $7,500 + 25% 50,000

75,000 100,000 13,750 + 34% 75,000

100,000 335,000 22,250 + 39% 100,000

335,000 10,000,000 113,900 + 34% 335,000

10,000,000 15,000,000 3,400,000 + 35% 10,000,000

15,000,000 18,333,333 5,150,000 + 38% 15,000,000

18,333,333 — 35% 0

Tax Rates for Trusts

Amount of unrelated

business taxable income is:

Of the

But not amount

Over– over– Tax is: over–

$0 $1,750 15% $0

1,750 4,150 $262.50 + 28% 1,750

4,150 6,300 934.50 + 31% 4,150

6,300 8,650 1,601.00 + 36% 6,300

8,650 — 2,447.00 + 39.6% 8,650

Table 1.–Number of Returns, Gross Unrelated Business Income (UBI),

Total Deductions, Unrelated Business Taxable Income (Less Deficit),

Unrelated Business Taxable Income, and Total Tax, by Internal

Revenue Code Section Describing Type of Tax-Exempt Organization,

Tax Year 2000

(All figures are estimates based on samples–money amounts are in

thousands of dollars)

Total

deductions (1),(2)

Gross

Number unrelated Number

Internal Revenue of business of Amount

Code section returns income returns

(UBI)

(1) (2) (3) (4)

All sections 38,567 8,413,385 38,408 7,703,052

220(e) — — — —

401(a) 566 176,647 517 64,174

408(e) 5,516 44,905 5,513 15,831

408A * 32 * 820 * 32 * 32

501(c)(2) (5) 245 83,538 245 83,594

501(c)(3) 11,497 4,780,148 11,431 4,828,648

501(c)(4) 1,480 331,351 1,479 342,431

501(c)(5) 2,484 239,430 2,482 234,413

501(c)(6) 6,086 901,135 6,086 882,345

501(c)(7) 6,825 561,235 6,794 493,097

501(c)(8) 674 104,702 674 103,490

501(c)(9) 611 941,207 605 410,645

501(c)(10) 223 15,494 223 17,164

501(c)(11) — — — —

501(c)(12) 219 50,728 219 44,415

501(c)(13) * 51 * 2,824 * 51 * 2,182

501(c)(14) 115 23,987 115 29,049

501(c)(15) — — — —

501(c)(16) — — — —

501(c)(17) ** ** ** **

501(c)(18) — — — —

501(c)(19) 1,878 152,667 1,878 151,007

501(c)(21) (6) — — — —

501(c)(22) ** ** ** **

501(c)(23) — — — —

501(c)(24) ** ** ** **

501(c)(25) ** ** ** **

501(c)(26) — — — —

501(c)(27) — — — —

529(a) — — — —

530(a) — — — —

Unrelated business

taxable income

(less deficit)

Unrelated

Interna Revenue Number of business

Code section returns Amount taxable

(3) income

(5) (6) (7)

All sections 31,549 710,333 1,427,441

220(e) — — —

401(a) 513 112,473 114,242

408(e) 5,285 29,074 30,066

408A * 32 * 788 * 788

501(c)(2) (5) 200 -57 10,135

501(c)(3) 9,235 -48,501 469,089

501(c)(4) 1,147 -11,080 12,394

501(c)(5) 2,031 5,017 24,150

501(c)(6) 4,238 18,790 80,787

501(c)(7) 6,015 68,138 106,452

501(c)(8) 510 1,211 6,957

501(c)(9) 347 530,562 547,915

501(c)(10) 166 -1,670 530

501(c)(11) — — —

501(c)(12) 177 6,313 9,375

501(c)(13) * 51 * 642 * 851

501(c)(14) 113 -5,062 2,706

501(c)(15) — — —

501(c)(16) — — —

501(c)(17) ** ** **

501(c)(18) — — —

501(c)(19) 1,456 1,660 8,957

501(c)(21) (6) — — —

501(c)(22) ** ** **

501(c)(23) — — —

501(c)(24) ** ** **

501(c)(25) ** ** **

501(c)(26) — — —

501(c)(27) — — —

529(a) — — —

530(a) — — —

Total tax (4)

Number

Internal Revenue of Amount

Code section returns

(8) (9)

All sections 19,340 402,904

220(e) — —

401(a) 493 36,215

408(e) 5,085 7,610

408A * 32 * 167

501(c)(2) (5) 118 3,259

501(c)(3) 4,124 146,128

501(c)(4) 447 3,256

501(c)(5) 895 6,464

501(c)(6) 1,963 25,453

501(c)(7) 4,604 23,050

501(c)(8) 269 1,492

501(c)(9) 285 144,502

501(c)(10) * 24 * 80

501(c)(11) — —

501(c)(12) 51 2,255

501(c)(13) * 43 * 217

501(c)(14) * 86 * 695

501(c)(15) — —

501(c)(16) — —

501(c)(17) ** **

501(c)(18) — —

501(c)(19) 758 1,445

501(c)(21) (6) — —

501(c)(22) ** **

501(c)(23) — —

501(c)(24) ** **

501(c)(25) ** **

501(c)(26) — —

501(c)(27) — —

529(a) — —

530(a) — —

* Estimate should be used with caution because of the small

number of sample returns on which it is based.

** Data deleted to avoid disclosure of information for specific

taxpayers. However, data are included in the appropriate totals.

(1) Excludes cost of sales and services, which was subtracted

from gross receipts from sales and services in computing gross

profit from sales and services. Gross profit from sales and

services was a component of gross unrelated business income (UBI).

Cost of sales and services can include amounts attributable to

depreciation, salaries and wages, and certain other deductible

items. For all exempt organizations reporting gross UBI, cost of

sales and services was $2.3 billion.

(2) Includes both deductions reported on the main pan of the tax

return and expense items reported on supporting schedules.

(3) Excludes returns with unrelated business taxable income

(less deficit) equal to zero.

(4) Total tax is the regular unrelated business income tax

after reduction by any tax credits (foreign tax credit, general

business credit, prior-year minimum tax credit, and other allowable

credits), plus any taxes from recapture of certain prior-year

credits, the “alternative minimum tax,” and the “proxy tax on

nondeductible lobbying and political expenditures. The proxy tax was

reported on Form 990-T and was included in total tax: however, it had

no connection to the tax on unrelated business income or an

organization’s involvement in unrelated business activities. For

exempt organizations reporting gross UBI above the $1,000-filing

threshold, total proxy tax was $3.5 million.

(5) Corporations that are organized under an Act of Congress,

and are instrumentalities of the United States, described in

section 501(c)(1) of the Internal Revenue Code, are not subject

to unrelated business income taxation.

(6) Prepaid legal service funds, previously described in section

501(c)(20) of the Internal Revenue Code, were no longer tax-exempt,

beginning with tax years after June 30, 1992. Therefore, these

organizations are not listed in this table.

NOTES: Detail my no add to totals because of rounding. See the

Appendix to this article for a listing of the types of tax-exempt

organizations, by the Internal Revenue Code section describing them.

Table 2.–Number of Returns, Gross Unrelated Business Income (UBI),

Total Deductions, Unrelated Business Taxable Income (Less Deficit),

Unrelated Business Taxable Income, and Total Tax, by Size of Gross

UBI, Tax Year 2000

[All figures are estimates based on samples–money amounts are in

thousands of dollars]

Total

deductions

(1),(2)

Cross

Number unrelated Number

Size of gross unrelated of business of Amount

business income (UBI) returns income returns

(UBI)

(1) (2) (3) (4)

Total 38,567 8,413,385 38,408 7,703,052

$1,000 under $10,001 (5) 15,069 60,791 14,974 60,100

$10,001 under $100,000 (5) 15,152 583,352 15,103 571,846

$100,000 under $500,000 5,943 1,311,651 5,933 1,326,132

$500,000 under $1,000,000 1,142 799,449 1,140 756,017

$1,000,000 under $5,000,000 1,003 2,103,551 999 1,957,751

$5,000,000 or more 258 3,554,591 258 3,031,205

Unrelated

business

taxable income

(less deficit)

Unrelated

Number of business

Size of gross unrelated returns Amount taxable

business income (UBI) (3) income

(5) (6) (7)

Total 31,549 710,333 1,427,441

$1,000 under $10,001 (5) 12,472 690 19,616

$10,001 under $100,000 (5) 12,376 11,506 111,744

$100,000 under $500,000 4,789 -14,481 166,526

$500,000 under $1,000,000 910 43,432 108,765

$1,000,000 under $5,000,000 797 145,800 313,982

$5,000,000 or more 204 523,386 706,808

Total tax (4)

Number

Size of gross unrelated of Amount

business income (UBI) returns

(8) (9)

Total 19,340 402,904

$1,000 under $10,001 (5) 9,180 3,260

$10,001 under $100,000 (5) 6,689 19,640

$100,000 under $500,000 2,475 46,230

$500,000 under $1,000,000 497 33,434

$1,000,000 under $5,000,000 394 101,152

$5,000,000 or more 104 199,188

(1) Excludes cost of sales and services, which was subtracted from

gross receipts from sales and services in computing gross profit

from sales and services. Gross profit from sales and services was

a component of gross unrelated business income (UBI) Cost of sales

and services can include amounts attributable to depreciation,

salaries and wages, and certain other deductible items. For all

exempt organizations reporting gross UBI, cost of sales and services

was $2.3 billion.

(2) Includes both deductions reported on the main part of the tax

return and expense items reported on supporting schedules.

(3) Excludes returns with unrelated business taxable income

(less deficit) equal to zero.

(4) Total tax is me regular unrelated business income tax after

reduction by any tax credits (foreign tax credit, general business

credit, prior-year minimum tax credit, and other allowable credits),

plus any taxes from recapture of certain prior-year the credits the

“alternative minimum tax,” and the “proxy” tax on nondeductible

lobbying and political expenditures. The proxy tax was reported on

Form 990-T and was included in total tax; however, it had no

connection to the tax on unrelated business income or an

organization’s involvement in unrelated business activities. For

exempt organizations reporting gross UBI above the $1,000-filing

threshold, total proxy tax was $3.5 million.

(5) The gross unrelated business income (UBI) brackets of “$1,000

under $10,001″ and “$10,001″ under $100,001” reflect the different

filing requirements for organizations with gross UBI of $10,000 a

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.

Table 3.–Number of Returns, Gross Unrelated Business Income

(UBI), Total Deductions, Unrelated Business Taxable Income

(Less Deficit), Unrelated Business Taxable Income, and Total

Tax, by Size of Unrelated Business Taxable Income or Deficit,

Tax Year 2000

[All figures are estimates based on samples–money amounts are

in thousands of dollars]

Total

deductions

(1),(2)

Gross

Number unrelated Number

Size of unrelated business of business of Amount

taxable income or deficit returns income returns

(UBI)

(1) (2) (3) (4)

Total 38,567 8,413,385 38,408 7,703,052

Deficit 12,213 3,497,269 12,213 4,214,378

Zero (4) 7,018 1,632,641 7,018 1,632,641

$1 under $1,000 3,841 42,278 3,841 40,554

$1,000 under $10,000 8,786 280,408 8,692 246,566

$10,000 under $100,000 5,532 812,296 5,483 645,170

$100,000 under $500,000 847 559,107 837 379,502

$500,000 under $1,000,000 139 201,712 137 105,847

$1,000,000 or more 191 1,387,673 187 438,394

Unrelated

business

taxable income Total tax (4)

(less deficit)

Number Number

Size of unrelated business of Amount of Amount

taxable income or deficit returns returns

(5) (6) (7) (8)

Total 31,549 710,333 19,340 402,904

Deficit 12,213 -717,109 95 514

Zero (4) — — 142 1,187

$1 under $1,000 3,841 1,725 3,824 255

$1,000 under $10,000 8,786 33,842 8,717 5,581

$10,000 under $100,000 5,532 167,126 5,388 29,766

$100,000 under $500,000 847 179,604 844 57,702

$500,000 under $1,000,000 139 95,866 139 31,606

$1,000,000 or more 191 949,279 190 276,293

(1) Excludes cost of sales and services, which was subtracted from

gross receipts from sales and services in computing gross profit

from sales and services. Gross profit from sales and services was a

component of gross unrelated business income (UBI). Cost of sales

and services can include amounts attributable to depreciation,

salaries and wages, and certain other deductible items. For all

exempt organizations reporting gross UBI, cost of sales and services

was $2.3 billion.

(2) Includes both deductions reported on the main part of the tax

return and expense items reported on supporting schedules.

(3) Total tax is the regular unrelated business income tax after

reduction by any tax credits (foreign tax credit, general business

credit, prior-year minimum tax credit, and other allowable credits),

plus any taxes from recapture of certain prior-year credits, the

“alternative minimum tax,” and the “proxy” tax on nondeductible

lobbying and political expenditures. The proxy tax was reported on

Form 990-T and was included in total tax; however, it had no

connection to me tax on unrelated business income or an organization’s

involvement in unrelated business activities. For exempt organizations

reporting gross UBI above the $1,000-filing threshold, total proxy tax

was $3.5 million.

(4) The Zero category includes “breakeven” returns with equal amounts

of gross unrelated business income and total deductions.

NOTE: Detail may not add to totals because of rounding.

Table 4.–Returns with Positive Unrelated Business Taxable Income:

Number of Returns, Gross Unrelated Business Income (UBI), Total

Deductions, Unrelated Business Taxable Income, and Total Tax, by

Type of Entity and Size of Gross UBI, Tax Year 2000

[All figures are estimates based on samples–money amounts

are in thousands of dollars]

Total

deductions (1),(2)

Gross

Type of entity and size of Number unrelated Number

gross unrelated business of business of Amount

income (UBI) returns income returns

(UBI)

(1) (2) (3) (4)

ALL ENTITIES

Total 19,336 3,283,475 19,177 1,856,033

$1,000 under $10,001 (4) 9,211 34,508 9,117 14,892

$10,001 under $100,000 (4) 6,715 237,040 6,667 125,296

$100,000 under $500,000 2,444 552,459 2,434 385,932

$500,000 under $1,000,000 493 342,562 491 233,797

$1,000,000 under $5,000,000 377 782,044 373 468,062

$5,000,000 or more 96 1,334,662 96 628,054

TAX-EXEMPT CORPORATIONS

Total 13,080 2,424,322 12,978 1,710,287

$1,000 under $10,001 (4) 4,186 19,709 4,091 8,066

$10,001 under $100,000 (4) 5,868 211,949 5,867 118,962

$100,000 under $500,000 2,231 501,321 2,227 374,717

$500,000 under $1,000,000 428 296,625 428 226,840

$1,000,000 under $5,000,000 299 603,395 297 438,126

$5,000,000 or more 67 791,323 67 543,576

TAX-EXEMPT TRUSTS

Total 6,256 859,152 6,199 145,746

$1,000 under $10,001 (4) 5,025 14,799 5,025 6,625

$10,001 under $100,000 (4) 847 25,091 600 6,334

$100,000 under $500,000 212 51,138 207 11,215

$500,000 under $1,000,000 65 45,937 63 6,957

$1,000,000 under $5,000,000 78 176,649 76 29,935

$5,000,000 or more 29 543,539 29 84,478

Total tax (3)

Unrelated

Type of entity and size of business Number

gross unrelated business taxable of Amount

income (UBI) income returns

(5) (6) (7)

ALL ENTITIES

Total 1,427,441 19,103 401,203

$1,000 under $10,001 (4) 19,616 9,180 3,260

$10,001 under $100,000 (4) 111,744 6,568 19,279

$100,000 under $500,000 166,526 2,402 45,804

$500,000 under $1,000,000 108,765 485 33,356

$1,000,000 under $5,000,000 313,982 373 100,748

$5,000,000 or more 706,808 95 198,756

TAX-EXEMPT CORPORATIONS

Total 714,035 12,877 207,081

$1,000 under $10,001 (4) 11,643 4,155 1,731

$10,001 under $100,000 (4) 92,987 5,752 14,374

$100,000 under $500,000 126,603 2,190 32,542

$500,000 under $1,000,000 69,786 420 20,952

$1,000,000 under $5,000,000 165,269 295 54,206

$5,000,000 or more 247,748 66 83,276

TAX-EXEMPT TRUSTS

Total 713,407 6,226 194,122

$1,000 under $10,001 (4) 7,973 5,025 1,529

$10,001 under $100,000 (4) 18,757 816 4,905

$100,000 under $500,000 39,923 212 13,262

$500,000 under $1,000,000 38,980 65 12,403

$1,000,000 under $5,000,000 146,713 78 46,543

$5,000,000 or more 459,060 29 115,480

(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 positive unrelated business taxable income, cost of sales and

services was $694.3 million, of which $681.9 million were attributable

to tax-exempt organizations.

(2) Includes both deductions reported on the main part of the tax

return and expense items reported on supporting schedules.

(3) Total tax is the regular unrelated business income tax after

reduction by any tax credits (foreign tax credit, general business

credit, prior-year minimum tax credit, and other allowable credits),

plus any taxes from recapture of certain prior-year credits, the

“alternative minimum tax,” and the “proxy” tax on nondeductible

lobbying and political expenditures. The proxy tax was reported on

Form 990-T and was included in total tax; however, it had no

connection to the tax on unrelated business income or an organization’s

involvement in unrelated business activities. For exempt organizations

reporting positive unrelated business taxable income, total proxy

tax was $2.8 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.

Table 5.–Number of Returns, Gross Unrelated Business Income (UBI),

Total Deductions, Unrelated Business Taxable Income (Less Deficit),

Unrelated Business Taxable Income, and Total Tax, by Primary

Unrelated Business Activity or Industrial Grouping, Tax Year 2000

[All figures are estimates based on samples–money amounts are in

thousands of dollars]

Total

deduc-

tions

(1),(2)

Gross

Number unrelated Number

Primary unrelated business activity of business of

or industrial grouping returns income returns

(UBI)

(1) (2) (3)

All activities and groupings 38,567 8,413,385 38,408

Agriculture, forestry, hunting, and

fishing 252 39,204 252

Mining 172 37,105 172

Utilities 68 27,882 68

Construction 71 7,288 71

Manufacturing 272 55,928 271

Wholesale trade * 83 * 2,261 * 83

Retail trade 1,233 401,030 1,232

Transportation and warehousing 52 8,475 52

Information 1,831 405,375 1,800

Finance and insurance, total 12,159 2,218,144 12,083

Unrelated debt-financed activities,

other than rental of real estate 1,255 241,918 1,251

Investment activities of Code section

501(c)(7), (9), and (17)

organizations 3,783 1,118,865 3,747

Passive income activities with

controlled organizations 419 180,755 419

Other finance and insurance 6,702 676,606 6,667

Real estate and rental and leasing,

total 5,283 827,943 5,251

Rental of personal property 590 86,939 590

Other real estate and rental and

leasing 4,692 741,004 4,661

Professional, scientific, and technical

services 6,812 1,603,908 6,795

Management of companies and enterprises 65 39,348 65

Administrative and support and waste

management and remediation services 696 227,880 696

Educational services 190 131,967 190

Healthcare and social assistance 1,107 1,082,936 1,106

Arts, entertainment, and recreation 4,379 609,856 4,379

Accommodation and food services 2,818 492,145 2,818

Other services 552 119,002 552

Exploited exempt activities 251 62,702 251

Not allocable 221 13,005 221

Total Unrelated

deduc- business

tions taxable income

(1),(2) (less deficit)

Number

Primary unrelated business activity Amount of Amount

or industrial grouping returns

(3)

(4) (5) (6)

All activities and groupings 7,703,052 31,549 710,333

Agriculture, forestry, hunting, and

fishing 31,012 182 8,192

Mining 20,495 166 16,610

Utilities 24,409 67 3,473

Construction 4,954 69 2,334

Manufacturing 62,482 220 -6,554

Wholesale trade * 2,083 * 75 * 177

Retail trade 440,799 1,007 -39,768

Transportation and warehousing 8,722 43 -247

Information 435,561 1,220 -30,186

Finance and insurance, total 1,346,379 10,902 871,765

Unrelated debt-financed activities,

other than rental of real estate 98,781 1,219 143,136

Investment activities of Code section

501(c)(7), (9), and (17)

organizations 542,962 3,090 575,903

Passive income activities with

controlled organizations 150,665 381 30,091

Other finance and insurance 553,972 6,212 122,634

Real estate and rental and leasing,

total 806,280 4,395 21,663

Rental of personal property 84,406 433 2,533

Other real estate and rental and

leasing 721,874 3,962 19,130

Professional, scientific, and technical

services 1,592,894 4,771 11,014

Management of companies and enterprises 5,407 64 33,941

Administrative and support and waste

management and remediation services 240,368 559 -12,488

Educational services 145,398 148 -13,432

Healthcare and social assistance 1,176,697 895 -93,761

Arts, entertainment, and recreation 635,198 3,506 -25,341

Accommodation and food services 526,734 2,431 -34,589

Other services 125,148 481 -6,146

Exploited exempt activities 62,016 164 686

Not allocable 10,014 184 2,991

Total tax (4)

Unrelated

Primary unrelated business activity business Number

or industrial grouping taxable of Amount

income returns

(7) (8) (9)

All activities and groupings 1,427,441 19,340 402,904

Agriculture, forestry, hunting, and

fishing 11,190 136 3,164

Mining 21,572 132 6,906

Utilities * 6,648 * 23 * 2,463

Construction * 2,705 * 62 * 842

Manufacturing 10,858 106 3,473

Wholesale trade * 486 * 43 * 74

Retail trade 16,342 493 4,535

Transportation and warehousing * 1,335 * 10 * 417

Information 17,435 418 5,220

Finance and insurance, total 950,154 9,648 264,274

Unrelated debt-financed activities,

other than rental of real estate 150,358 1,036 48,590

Investment activities of Code section

501(c)(7), (9), and (17)

organizations 596,826 2,900 153,721

Passive income activities with

controlled organizations 42,114 284 13,011

Other finance and insurance 160,856 5,427 48,952

Real estate and rental and leasing,

total 114,595 2,216 33,794

Rental of personal property 8,575 198 2,358

Other real estate and rental and

leasing 106,020 2,018 31,437

Professional, scientific, and technical

services 112,592 2,056 34,682

Management of companies and enterprises 33,976 64 11,639

Administrative and support and waste

management and remediation services 8,890 236 2,348

Educational services 5,249 61 1,679

Healthcare and social assistance 38,403 354 11,867

Arts, entertainment, and recreation 37,886 1,734 7,340

Accommodation and food services 23,334 992 5,103

Other services 5,808 318 1,315

Exploited exempt activities 4,599 132 1,473

Not allocable 3,385 106 297

* Estimate should be used with caution because of the small number of

sample returns on which it is based.

(1) Excludes cost of sales and services, which was subtracted from

gross receipts from sales and services in computing gross profit from

sales and services. Gross profit from sales and services was a

component of gross unrelated business income (UBI). Cost of sales and

services can include amounts attributable to depreciation, salaries and

wages, and certain other deductible items. For all exempt organizations

reporting gross UBI, cost of sales and services was $2.3 billion.

(2) Includes both deductions reported on the main part of the tax

return and expense items reported on supporting schedules.

(3) Excludes returns with unrelated business taxable income (less

deficit) equal to zero.

(4) Total tax is the regular unrelated business income tax after

reduction by any tax credits (foreign tax credit, general business

credit, prior-year minimum tax credit, and other allowable credits),

plus any taxes from recapture of certain prior-year credits, the

“alternative minimum tax,” and the “proxy” tax on nondeductible

lobbying and political expenditures. The proxy tax was reported on

Form 990-T and was included in total tax; however, it had no

connection to the tax on unrelated business income or an organization’s

involvement in unrelated business activities. For exempt organizations

reporting gross UBI above the $1,000-filing threshold, total proxy

tax was $3.5 million.

NOTE. Detail may not add to totals because of rounding.

Table 6.–Sources of Gross Unrelated Business Income (UBI),

by Size of Gross UBI, Tax Year 2000

[All figures are estimates based on samples–money amounts

are in thousands of dollars]

Sources of

gross

unrelated

business

income

(UBI) (1)

Gross profit

Gross unrelated (less loss)

business from sales

income (UBI) and services

Number Number

Size of gross unrelated of Amount of

business income (UBI) returns returns

(1) (2) (3)

Total 38,567 8,413,385 15,492

$1,000 under $10,001 (2) 15,069 60,791 2,722

$10,001 or more, total (2),(3) 23,498 8,352,594 12,770

$10,001 under $100,000 15,152 583,352 7,540

$100,000 under $500,000 5,943 1,311,651 3,740

$500,000 under $1,000,000 1,142 799,449 698

$1,000,000 under $5,000,000 1,003 2,103,551 631

$5,000,000 or more 258 3,554,591 161

Sources of gross unrelated

business income (UBI) (1)

Gross

profit

(less loss) Capital gain

from sales net income

and services

Number

Size of gross unrelated Amount of Amount

business income (UBI) returns

(4) (5) (6)

Total 4,070,311 1,376 659,245

$1,000 under $10,001 (2) 10,670 399 1,366

$10,001 or more, total (2),(3) 4,059,642 978 657,879

$10,001 under $100,000 271,649 603 13,927

$100,000 under $500,000 690,740 182 33,349

$500,000 under $1,000,000 399,181 66 33,367

$1,000,000 under $5,000,000 1,044,454 95 143,207

$5,000,000 or more 1,653,618 31 434,029

Sources of gross unrelated

business income (UBI) (1)

Net gain

(less loss),

Net capital loss sales of

(trusts only) noncapital

assets (4)

Number Number

Size of gross unrelated of Amount of

business income (UBI) returns returns

(7) (8) (9)

Total 115 468 211

$1,000 under $10,001 (2) — — —

$10,001 or more, total (2),(3) 115 468 211

$10,001 under $100,000 * 63 * 39 * 98

$100,000 under $500,000 25 270 71

$500,000 under $1,000,000 10 26 16

$1,000,000 under $5,000,000 13 121 17

$5,000,000 or more 4 12 10

Sources of gross unrelated

business income (UBI) (1)

Net gain

(less loss), Income (less loss)

sales of from partnerships

noncapital and S corporations

assets (4)

Number

Size of gross unrelated Amount of Amount

business income (UBI) returns

(10) (11) (12)

Total 470 6,786 327,235

$1,000 under $10,001 (2) — 5,102 14,063

$10,001 or more, total (2),(3) 470 1,685 313,172

$10,001 under $100,000 * -145 995 20,849

$100,000 under $500,000 1,473 335 31,655

$500,000 under $1,000,000 -67 118 22,658

$1,000,000 under $5,000,000 -364 161 78,495

$5,000,000 or more -426 75 159,515

Sources of gross unrelated

business income (UBI) (1)

Rental Unrelated debt-

income (5) financed intone

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(13) (14) (15) (16)

Total 4,029 213,655 3,316 417,969

$1,000 under $10,001 (2) 1,061 4,889 992 4,357

$10,001 or more, total (2),(3) 2,968 208,766 2,324 413,612

$10,001 under $100,000 2,063 43,549 1,449 40,872

$100,000 under $500,000 667 55,036 630 80,705

$500,000 under $1,000,000 119 28,896 97 42,256

$1,000,000 under $5,000,000 97 48,948 119 110,341

$5,000,000 or more 22 32,338 29 139,438

Sources of gross unrelated

business income (UBI) (1)

Income from

Investment controlled

income organizations

(less loss) (6) (7)

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(17) (18) (19) (20)

Total 5,992 659,448 1,464 198,754

$1,000 under $10,001 (2) 2,472 8,659 317 1,114

$10,001 or more, total (2),(3) 3,520 650,789 1,148 197,640

$10,001 under $100,000 2,054 36,849 754 10,783

$100,000 under $500,000 1,099 75,249 228 20,901

$500,000 under $1,000,000 214 47,874 54 12,146

$1,000,000 under $5,000,000 121 139,928 76 43,928

$5,000,000 or more 32 350,889 35 109,882

Sources of gross unrelated

business income (UBI) (1)

Exploited exempt

activity income, Advertising

except advertising income

Number Number

Size of gross unrelated of Amount of

business income (UBI) returns returns

(21) (22) (23)

Total 820 135,216 7,903

$1,000 under $10,001 (2) * 110 * 716 3,026

$10,001 or more, total (2),(3) 710 134,500 4,878

$10,001 under $100,000 386 9,806 2,888

$100,000 under $500,000 185 18,353 1,394

$500,000 under $1,000,000 61 19,346 277

$1,000,000 under $5,000,000 60 48,085 256

$5,000,000 or more 18 38,910 62

Sources of gross unrelated

business income (UBI) (1)

Advertising Other income

income (less loss)

Number

Size of gross unrelated Amount of Amount

business income (UBI) returns

(24) (25) (26)

Total 1,325,650 5,282 405,900

$1,000 under $10,001 (2) 12,566 1,145 2,392

$10,001 or more, total (2),(3) 1,313,084 4,137 403,508

$10,001 under $100,000 88,368 2,546 46,885

$100,000 under $500,000 213,408 1,158 91,052

$500,000 under $1,000,000 144,509 199 49,310

$1,000,000 under $5,000,000 326,474 191 120,176

$5,000,000 or more 540,325 42 96,085

* Estimate should be used with caution because of the small

number of sample returns on which it is based.

(1) For definitions of the sources of gross unrelated business income,

see the Explanation of Selected Terns section of this article.

(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.

Income totals for these larger organizations with gross UBI over

$10,000 are shown 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 bemuse of rounding.

Table 7.–Types of Deductions, by Size of Gross

Unrelated Business Income (UBI), Tax Year 2000

[All figures are estimates based on samples–money

amounts are in thousands of dollars]

All Organizations

Total

deductions (1),(2)

Total

Size of gross unrelated number Number

business income (UBI) of of Amount

returns returns

(1) (2) (3)

Total 38,567 38,408 7,703,052

$1,000 under $10,001 (3) 15,069 14,974 60,100

$10,001 under $100,000 (3) 15,152 15,103 571,846

$100,000 under $500,000 5,943 5,933 1,326,132

$500,000 under $1,000,000 1,142 1,140 756,017

$1,000,000 under $5,000,000 1,003 999 1,957,751

$5,000,000 or more 258 258 3,031,205

Organizations win gross

unrelated business income

(UBI) of $1,000 under $10,001 (3)

Total

deductions Net operating

(2),(4) loss deduction

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(4) (5) (6) (7)

Total 14,974 60,100 871 1,677

$1,000 under $10,001 (3) 14,974 60,100 871 1,677

$10,001 under $100,000 (3) — — — —

$100,000 under $500,000 — — — —

$500,000 under $1,000,000 — — — —

$1,000,000 under $5,000,000 — — — —

$5,000,000 or more — — — —

Organizations

with gross

unrelated Organizations with

business gross unrelated

income (UBI) business income

of $1,000 (UBI) of $10,001

under $10,001 or more (3)

(3)

Specific Total

deduction deductions (2),(5)

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(8) (9) (10) (11)

Total 10,258 9,856 23,434 7,642,951

$1,000 under $10,001 (3) 10,258 9,856 — —

$10,001 under $100,000 (3) — — 15,103 571,846

$100,000 under $500,000 — — 5,933 1,326,132

$500,000 under $1,000,000 — — 1,140 756,017

$1,000,000 under $5,000,000 — — 999 1,957,751

$5,000,000 or more — — 258 3,031,205

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions directly connected with UBI

Allocable to

Total rental

income (6)

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(12) (13) (14) (15)

Total 21,626 6,930,523 1,254 131,284

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) 13,620 540,979 853 22,541

$100,000 under $500,000 5,731 1,227,919 284 35,483

$500,000 under $1,000,000 1,079 689,478 52 12,430

$1,000,000 under $5,000,000 951 1,802,106 54 40,903

$5,000,000 or more 246 2,670,040 11 19,927

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions directly connected with UBI

Allocable to

unrelated Allocable to

debt-financed investment

income (6) income (6),(7)

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(16) (17) (18) (19)

Total 2,043 397,385 1,087 28,150

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) 1,246 41,389 459 3,517

$100,000 under $500,000 572 78,464 453 6,004

$500,000 under $1,000,000 89 35,733 98 2,173

$1,000,000 under $5,000,000 109 92,099 61 5,082

$5,000,000 or more 27 149,700 15 11,374

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions directly connected with UBI

Allocable to

Allocable to exploited exempt

income from activity income,

from controlled except advertising

organizations (6) (6)

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(20) (21) (22) (23)

Total 478 127,698 670 119,334

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) 252 6,185 369 6,519

$100,000 under $500,000 136 14,264 172 15,865

$500,000 under $1,000,000 26 4,227 58 19,378

$1,000,000 under $5,000,000 41 30,059 54 44,907

$5,000,000 or more 23 72,964 17 32,666

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions directly connected with UBI

Direct Compensation of

advertising officers, directors,

costs (6) and trustees

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(24) (25) (26) (27)

Total 4,539 961,796 2,012 45,448

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) 2,685 66,429 1,090 10,861

$100,000 under $500,000 1,295 160,848 673 14,613

$500,000 under $1,000,000 264 102,298 101 2,862

$1,000,000 under $5,000,000 238 236,047 119 11,387

$5,000,000 or more 58 396,175 30 5,724

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions directly connected with UBI

Repairs and

Salaries and wages maintenance

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(28) (29) (30) (31)

Total 10,548 1,357,548 7,565 100,024

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) 5,760 118,052 4,198 13,745

$100,000 under $500,000 3,481 335,464 2,445 31,844

$500,000 under $1,000,000 623 169,946 438 13,502

$1,000,000 under $5,000,000 553 345,532 394 22,553

$5,000,000 or more 131 388,554 90 18,381

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions directly connected with UBI

Bad debts Interest

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(32) (33) (34) (35)

Total 712 45,391 3,078 90,386

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) 171 411 1,574 11,859

$100,000 under $500,000 261 1,417 1,084 19,117

$500,000 under $1,000,000 95 2,320 200 7,415

$1,000,000 under $5,000,000 123 10,122 169 27,752

$5,000,000 or more 42 31,121 51 24,243

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions directly connected with UBI

Taxes and

licenses paid Depreciation

deduction

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(36) (37) (38) (39)

Total 11,292 189,291 7,836 197,207

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) 6,748 26,284 4,342 21,460

$100,000 under $500,000 3,424 67,328 2,514 57,077

$500,000 under $1,000,000 565 26,561 449 24,338

$1,000,000 under $5,000,000 443 34,268 418 48,279

$5,000,000 or more 111 34,851 113 46,053

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions directly connected with UBI

Contributions

Depletion to deferred

compensation plans

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(40) (41) (42) (43)

Total 74 4,292 981 12,231

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) * 47 * 499 459 596

$100,000 under $500,000 18 574 363 1,780

$500,000 under $1,000,000 * 9 * 3,220 76 901

$1,000,000 under $5,000,000 * 9 * 3,220 70 3,808

$5,000,000 or more * 9 * 3,220 12 5,146

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions directly connected with UBI

Contributions Net operating

to employee loss

benefit programs deduction

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(44) (45) (46) (47)

Total 5,053 173,078 2,882 179,586

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) 2,224 6,122 1,673 13,370

$100,000 under $500,000 1,889 26,732 785 28,362

$500,000 under $1,000,000 413 18,748 187 18,980

$1,000,000 under $5,000,000 418 53,278 175 63,198

$5,000,000 or more 108 68,198 61 55,676

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions not

Deductions directly directly connected

connected with UBI with UBI

Other deductions Total

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(48) (49) (50) (51)

Total 14,402 2,770,394 12,831 712,427

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) 8,500 171,143 8,382 30,866

$100,000 under $500,000 4,194 332,683 3,155 98,213

$500,000 under $1,000,000 802 227,159 641 66,539

$1,000,000 under $5,000,000 712 731,991 518 155,645

$5,000,000 or more 193 1,307,418 135 361,165

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions not directly

connected with UBI

Specific

deduction Contributions

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(52) (53) (54) (55)

Total 10,649 10,323 1,809 54,186

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) 7,189 6,917 1,125 4,424

$100,000 under $500,000 2,501 2,451 457 21,406

$500,000 under $1,000,000 492 489 87 11,071

$1,000,000 under $5,000,000 373 371 99 9,459

$5,000,000 or more 94 94 41 7,825

Organizations with gross unrelated

business income (UBI) of

$10,001 or more (3)

Deductions not directly

connected with UBI

Excess exempt

Set-asides (7) expenses

Number Number

Size of gross unrelated of Amount of Amount

business income (UBI) returns returns

(56) (57) (58) (59)

Total 371 357,897 2,214 290,022

$1,000 under $10,001 (3) — — — —

$10,001 under $100,000 (3) * 166 * 3,164 1,153 16,361

$100,000 under $500,000 116 26,998 687 47,357

$500,000 under $1,000,000 39 21,110 165 33,868

$1,000,000 under $5,000,000 38 66,651 165 79,164

$5,000,000 or more 12 239,973 44 113,273

* Estimate should be used with caution because of the small

number of sample returns on Which it is based.

(1) Excludes cost of sales and services, which was subtracted from

gross receipts from sales and services in computing gross profit from

sales and services. Gross profit from sales and services was a

component of gross unrelated business income (UBI). Cost of sales

and services can include amounts attributable to depreciation, salaries

and wages, and certain other deductible items. For all exempt

organizations reporting gross UBI, cost of sales and services was

$2.3 billion.

(2) Includes both deductions reported on the main part of the tax

return and expense items reported on supporting schedules.

(3) Organizations will gross UBI between $1,000 (the filing threshold)

and $10,000 were required to report only totals for expenses and

deductions (except for the specific deduction and net operating loss

deduction, which all organizations reported separately). Organizations

with gross UBI over $10,000 were required to report each expense and

deduction item separately, as shown in columns 14 through 45, 48, 49,

and 54 through 59.

(4) Excludes $42.3 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 $2.2 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.

Figure A

Selected Items from Exempt Organization Business

Income Tax Returns, Tax Years 1999-2000

[Money amounts are in thousands of dollars]

Percentage

change,

Item 1999 2000 1999 to

2000

(1) (2) (3)

Number of returns, total 42,151 38,567 -8.5

With gross unrelated business

income of $10,000 or less (1) 17,781 15,069 -15.3

With gross unrelated business

income over $10,000 (1) 24,369 23,498 -3.6

With unrelated business

taxable income 20,718 19,336 -6.7

Without unrelated business

taxable income 21,433 19,231 -10.3

Gross unrelated business income 7,722,135 8,413,385 +9.0

Total deductions (2) 6,834,850 7,703,052 +12.7

Unrelated business taxable

income (less deficit) 887,284 710,333 -19.9

Unrelated business

taxable income 1,484,921 1,427,441 -3.9

Deficit 597,637 717,109 +20.0

Unrelated business income tax 423,065 405,826 -4.1

Total tax 421,746 402,904 -4.5

(1) Organizations with gross unrelated business income between $1,000

(the filing threshold) and $10,000 were required to report only totals

for expenses and deductions (except for the specific deduction and net

operating loss carryover, which all organizations reported separately).

(2) Excludes cost of sales and services, which was subtracted from

gross receipts from sales and services in computing gross profit from

sales and services (GPSS). GPSS is a component of gross unrelated

business income (upon which the filing requirement is based). Total

cost of sales and services was $2.2 billion for 1999 and $2.3 billion

for 2000.

NOTES: Detail may not add to totals because of rounding. See the

Explanation of Selected Terms section of this article for definitions

of gross unrelated business income, total deductions, unrelated

business taxable income (less deficit), unrelated business income

tax, and total tax.

Figure B

Exempt Organization Business Income Tax Returns: Sources of

Gross Unrelated Business Income (UBI), Tax Year 2000

[Money amounts are in thousands of dollars]

Percentage IRC

All of total section

Item exempt gross UBI 501(c)(3)

organi- in column organi-

zations (1) zations

(1) (2) (3)

Number of returns 38,567 N/A 11,497

Total gross unrelated business

income (UBI) 8,413,385 100.0 4,780,148

Gross profit (less loss) from

sales and services 4,070,311 48.4 2,981,034

Capital gain net income 659,245 7.8 174,974

Net capital loss (trusts only) 468 (1) 209

Net gain (less loss),

noncapital assets (2) 470 (1) 183

Income (less loss) from

partnerships and S

corporations 327,235 3.9 209,635

Rental income (3) 213,655 2.5 137,510

Unrelated debt-financed income 417,969 5.0 288,725

Investment income (less loss)

(4) 659,448 7.8 N/A

Income from controlled

organizations (5) 198,754 2.4 98,677

Exploited exempt activity

income, except advertising 135,216 1.6 62,887

Advertising income 1,325,650 15.8 609,732

Other income (less loss) 405,900 4.8 217,001

Percentage Column (3)

of total as a

Item gross UBI percentage

in column of column

(3) (1)

(4) (5)

Number of returns N/A 29.8

Total gross unrelated business

income (UBI) 100.0 56.8

Gross profit (less loss) from

sales and services 62.4 73.2

Capital gain net income 3.7 26.5

Net capital loss (trusts only) (1) 44.7

Net gain (less loss),

noncapital assets (2) (1) 38.9

Income (less loss) from

partnerships and S

corporations 4.4 64.1

Rental income (3) 2.9 64.4

Unrelated debt-financed income 6.0 69.1

Investment income (less loss)

(4) N/A N/A

Income from controlled

organizations (5) 2.1 49.6

Exploited exempt activity

income, except advertising 1.3 46.5

Advertising income 12.8 46.0

Other income (less loss) 4.5 53.5

N/A – Not applicable.

(1) Less than 0.05 percent.

(2) Property other than capital assets generally included property

of a business nature, in contrast to personal property and investment

property, which were capital assets.

(3) Income from real properly and personal property leased with

real property.

(4) Reported by Internal Revenue Code section 501(c)(7), (9), and

(17) organizations only.

(5) Annuities, interest, rents, and royalties.

NOTE: Column detail may not add to totals because of rounding.

Figure K

Population and Sample Counts, and Designed and Achieved

Sample Rates, by Sample Group, Tax Year 2000

Size of gross unrelated business income

Sample (UBI) on Form 990-T and size of total Population Sample

group assets on matching IRC section counts counts

number 501(c)(3) Form 990 or Form 990-EZ (1)

(1) (2)

1 Gross UBI $1,000 under $20,000 and total

assets under $1,000,000, or Gross UBI

$1,000 under $20,000 and no matching

Form 990 or Form 990-EZ 18,371 602

2 Gross UBI $1,000 under $20,000 and total

assets $1,000,000 under $2,500,000, or

Gross UBI $20,000 under $60,000 and

total assets under $2,500,000, or

Gross UBI $20,000 under $60,000 and no

matching Form 990 or Form 990-EZ 7,306 437

3 Gross UBI $1,000 under $60,000 and total

assets $2,500,000 under $10,000,000, or

Gross UBI $60,000 under $150,000 and

total assets under $10,000,000, or

Gross UBI $60,000 under $150,000 and no

matching Form 990 or Form 990-EZ 5,403 675

4 Gross UBI $1,000 under $150,000 and

total assets $10,000,000 under

$30,000,000, or Gross UBI $150,000 under

$300,000 and total assets under

$30,000,000, or Gross UBI $150,000 under

$300,000 and no matching Form 990 or

Form 990-EZ 2,953 1,295

5 Gross UBI $300,000 or more, or total

assets $30,000,000 or more 4,806 4,806

All sample groups (2) 38,839 7,815

Size of gross unrelated business income

Sample (UBI) on Form 990-T and size of total Designed Achieved

group assets on matching IRC section sample sample

number 501(c)(3) Form 990 or Form 990-EZ (1) rate rate

Percentages

(3) (4)

1 Gross UBI $1,000 under $20,000 and total

assets under $1,000,000, or Gross UBI

$1,000 under $20,000 and no matching

Form 990 or Form 990-EZ 3.00 3.28

2 Gross UBI $1,000 under $20,000 and total

assets $1,000,000 under $2,500,000, or

Gross UBI $20,000 under $60,000 and

total assets under $2,500,000, or

Gross UBI $20,000 under $60,000 and no

matching Form 990 or Form 990-EZ 6.00 5.98

3 Gross UBI $1,000 under $60,000 and total

assets $2,500,000 under $10,000,000, or

Gross UBI $60,000 under $150,000 and

total assets under $10,000,000, or

Gross UBI $60,000 under $150,000 and no

matching Form 990 or Form 990-EZ 13.00 12.49

4 Gross UBI $1,000 under $150,000 and

total assets $10,000,000 under

$30,000,000, or Gross UBI $150,000 under

$300,000 and total assets under

$30,000,000, or Gross UBI $150,000 under

$300,000 and no matching Form 990 or

Form 990-EZ 45.00 43.85

5 Gross UBI $300,000 or more, or total

assets $30,000,000 or more 100.00 100.00

All sample groups (2) N/A N/A

N/A–Not applicable.

(1) The Form 990-T sample included returns that were initially selected

based on independent Form 990-T sampling criteria, and additional

returns that were not initially selected but were subsequently matched

to returns in the Forms 990 and 900-EZ sample of IRC section 501(c)(3)

filers. Form 990-EZ may be completed by smaller organizations, those

with gross receipts of less than $100,000 and end-of-year assets of

less than $250,000.

(2) After excluding returns that were originally selected for the

sample but later rejected, the sample size was 7,762, and the

estimated population size was 38,567.

Figure L

Coefficients of Variation for Selected Items, by Size of Gross

Unrelated Business Income, Tax Year 2000

Gross

Size of gross unrelated Number unrelated Total

business income of business deductions

returns income

Coefficient of variation

(percentages)

(1) (2) (3)

Total 0.20 0.44 0.54

$1,000 under $10,001 (1) 2.12 3.39 6.49

$10,001 under $100,000 (1) 2.15 1.75 2.99

$100,000 under $300,000 2.09 1.61 2.24

$30,0000 or more N/A N/A N/A

Unrelated

Size of gross unrelated business Total

business income taxable tax

income

Coefficient of

variation

(percentages)

(4) (5)

Total 0.54 0.45

$1,000 under $10,001 (1) 6.72 7.32

$10,001 under $100,000 (1) 5.46 6.07

$100,000 under $300,000 4.32 4.81

$30,0000 or more N/A N/A

N/A–Not applicable because the achieved sample rate was 100 percent.

(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.

Notes and References

[1] A business activity is considered unrelated if it does not contribute importantly (other than the production of funds) to accomplishing an organization’s charitable, educational, or other purpose that is the basis for the organization’s tax exemption. In determining whether activities contribute importantly to the accomplishment of an exempt purpose, the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt function that they intend to serve. To the extent an activity is conducted on a scale larger than is reasonably necessary to perform an exempt purpose, it does not contribute importantly to the accomplishment of the exempt purpose. The part of the activity that is more than needed to accomplish the exempt purpose is an unrelated trade or business. Whether an activity contributes importantly depends in each case on the facts involved. See IRS Publication 598, Tax on Unrelated Business Income of Exempt Organizations, for additional information on unrelated business income and tax.

The following is a case example from Publication 598. An American folk art museum operates a shop in the museum that sells reproductions of works in the museum’s own collection and also works from the collections of other art museums. In addition, the museum sells souvenir items of the city where the museum is located. The sale of the reproductions, regardless of which museum houses the original works, is considered to be “related” because it contributes importantly to the achievement of the museum’s exempt educational purpose by making works of art familiar to a broader segment of the public, thereby enhancing the public’s understanding and appreciation of art. However, the sale of souvenir items depicting the city in which the museum is located is considered to be “unrelated” because it has no causal relationship to art or to artistic endeavor, and, therefore, does not contribute importantly to the accomplishment of the museum’s exempt educational purposes.

[2] The unrelated business income tax (UBIT) for nonprofit corporations was determined based on the regular corporate income tax rates in effect for the tax year of the Form 990-T filing. Nonprofit trusts were generally taxed at the regular individual (single status) income tax rates established for estates and trusts for the tax year of the Form 990-T filing. Trusts that were eligible for the maximum 28-percent tax rate on capital gain net income figured their tax based on Schedule D of Form 1041, U.S. Income Tax Return for Estates and Trusts. The corporate and trust tax-rate schedules for Tax Year 2000 are included in the definition of Unrelated Business Income Tax, found in the Explanation of Selected Terms section of this article.

[3] Churches, which are tax-exempt under Internal Revenue Code section 501(c)(3), are not required to apply for exemption unless they desire to obtain an Internal Revenue Service ruling, and they do not have to file a Form 990 information return. However, these churches are required to file 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. Private foundations and certain charitable trusts file an information return on Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation. 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 Arnsberger, Paul D., “Charities and Other Tax-Exempt Organizations, 2000,” Statistics of Income Bulletin, Winter 2003-2004, Volume 23, Number 3. For the most recent annual data on private foundations, see Ludlum, Melissa, “Domestic Private Foundations and Charitable Trusts, 2000,” Statistics of Income Bulletin, Fall 2003, Volume 23, Number 2. Internal Revenue Code section 4947(a)(1) “nonexempt charitable trusts” and section 4947(a)(2) “split-interest trusts” are required to report unrelated business income on Form 1041, Estate and Trust Income Tax Return, rather than Form 990-T. Information on nonexempt charitable trusts can be found in Ludlum, cited above. For information on split-interest trusts, which file Form 5227, Split-Interest Trust Information Return, see Belvedere, Melissa J., “Split-Interest Trusts, 2001,” Statistics of Income Bulletin, Winter 2003-2004, Volume 23, Number 3.

[4] The amount of total tax liability originally reported on Forms 990-T, as stated in these statistics, may not necessarily be the amount ultimately paid to the Internal Revenue Service (IRS). Changes in tax liability assessments can be made after the original return is filed, either by the taxpayer on an amended return, by the IRS after examination, or by rulings of the U.S. tax courts after litigation.

[5] A membership organization that was tax-exempt under Internal Revenue Code sections 501(c)(4), 501(c)(5), or 501(c)(6) was liable for the proxy tax on certain nondeductible lobbying and political expenditures if the organization did not notify its members of the shares of their dues that were allocated to the nondeductible expenditures, or if the notice did not include the entire amount of dues that was allocated.

[6] Organizations with unrelated business income tax liability may have been liable for the alternative minimum tax (AMT) on certain adjustments and tax preference items. In addition to reporting AMT on Form 990-T, tax-exempt trusts with AMT were required to attach Form 1041, Schedule I (Alternative Minimum Tax), and tax-exempt corporations with AMT were required to attach Form 4626 (Alternative Minimum Tax-Corporations).

[7] Examples of “other” credits are the possessions tax credit, the nonconventional source fuel credit, and the qualified electric vehicle credit.

[8] The term “charitable” refers to tax-exempt organizations with purposes that are charitable, educational, scientific, literary, or religious in nature, or organizations that test for public safety or prevent cruelty to children or animals. The term also covers organizations that otherwise qualified for tax-exempt status under the Income Tax Regulations issued for Internal Revenue Code section 501 (c)(3).

[9] These and other statistics cited in this article for Tax Years 1991-1999 for the most part were published in earlier editions of the Spring issue of the Statistics of Income Bulletin, 1995-2003, Volumes 14-22, respectively.

[10] Internal Revenue Code section 501(c)(3) fliers were categorized using the National Taxonomy of Exempt Entities (NTEE) coding system, an industry-wide standard for nonprofit organizational classification. The NTEE was developed and is maintained by the National Center for Charitable Statistics, Center on Nonprofits and Philanthropy, Urban Institute.

[11] See Amsberger, Paul D., “Charities and Other Tax-Exempt Organizations, 2000,” Statistics of Income Bulletin, Winter 2003-2004, Volume 23, Number 3.

[12] See Riley, Margaret, “Unrelated Business Income Tax Returns, 1999,” Statistics of Income Bulletin, Spring 2003, Volume 22, Number 4.

[13] In addition to organizations described as tax-exempt under sections 501(c)(2)-(27) of the Internal Revenue Code (IRC), certain other types of organizations, all of which are trusts, were required to file Form 990-T if they had gross “unrelated business” activity income of $1,000 or more. These include the section 408(e) traditional Individual Retirement Accounts (IRA’s), as well as section 220(e) Archer Medical Savings Accounts; section 401(a) qualified pension, profit-sharing, and stock bonus plans; section 408A Roth IRA’s, section 529(a) Coverdall Education Savings Accounts, and section 530(a) Qualified State Tuition Plans.

[14] For Tax Year 2000, 94 percent of the 4,883 section 408(e) IRA trusts whose returns are represented in Figure E reported partnership income (less loss). Of those, 44 percent had gross UBI of less than $2,000. Fairly small gains or losses in partnership income experienced by such organizations could result in their income straddling the $1,000 filing threshold from one tax year to the next.

[15] Constant dollars were derived using the 1996 chain-type price indexes issued by the Bureau of Economic Analysis (BEA), Department of Commerce. The indexes are available from BEA’s Web site, www.bea.gov. Tax Year 2000 is the base year in Figures G through J.

[16] Tax return information reported by fliers of Form 990-T is protected by disclosure rules contained in the Internal Revenue Code. However, to avoid misinterpretation of Form 990-T data fluctuations presented in an article that appeared in the Spring 2002 issue of the SOI Bulletin, the tax-exempt association signed a release form to allow its identity and tax return information to be disclosed to the public.

[17] The Wilshire 5000 Total Market Index was used for analyzing possible effects of financial markets on unrelated business taxable income and tax. This index can be accessed from www.wilshire.com/quote.html.

[18] For tax years beginning after December 31, 1997, an organization exempt from tax under Internal Revenue Code section 501(a) and described in section 401 (a) (qualified pension, profit-sharing, or stock-bonus plan) or section 501(c)(3) (nonprofit charitable organization) could be a shareholder in a subchapter S corporation without causing the corporation to lose its subchapter S status. For 1998 and later tax years, partnership income (less loss) and S corporation income (less loss) were combined and reported as a single total on Form 990-T. For tax years prior to 1998, only partnership income (less loss) was reported. See the definition of “income (Less Loss) from Partnerships and S Corporations” in the Explanation of Selected Terms section of this article.

[19] For additional information on the Forms 990 and 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.

Margaret Riley is a statistician with the Special Studies Special Projects Section. This article was prepared under the direction of Barry W. Johnson, Chief.

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