To define unrelated business income tax (UBIT), provide guidance to all University departments, and discuss a department’s responsibility in identifying new or current activities that may be subject to unrelated business income tax (see also BPM E-6-2 Revenue Producing Activities). The inclusion of an activity in this policy does not indicate that the listed activities are necessarily permitted. Compliance with BPM E-6-2 and all other applicable policies is required.
The University of Kentucky (the University) is excluded from federal income taxes as an organization described in Section 115 of the Internal Revenue Code of 1986. Each of the University’s affiliated non-profit organizations has received a determination from the Internal Revenue Service (IRS) granting exemption from federal income taxation pursuant to the provisions of Internal Revenue Code section 501(c)(3). However, the University is required to pay federal income tax on net income from activities unrelated to the exempt mission of the University: education, research and public service.
An activity is an unrelated business (and subject to unrelated business income tax) if it meets three requirements:
It is very important that all unrelated business activities of the University be approved as described in BPM E-6-2 and reported on the federal tax return. The IRS can and will assess costly penalties and interest charges for underpayment of taxes.
Below are examples of income activities currently exempt from unrelated business income taxation:
Below are examples of income activities that may be subject to unrelated business income taxation: