Q: What is the Unrelated Business Income Tax (UBIT)?

A: The Unrelated Business Income Tax (UBIT) is a tax assessed on all income of a tax-exempt organization that is derived from a source not substantially related to the organization’s exempt purpose.

The test for determining what income is subject to UBIT is as follows:

1. Was the income derived from a trade or business?
2. Does the organization regularly engage in this trade or business?
3. Is the trade or business unrelated to the organization’s exempt purpose (other than simply providing funding for the organization)?

The IRS has determined the meaning of this test and the terms used in it, so it is recommended that religious organizations consult with their local attorney or Certified Public Accountant if they are concerned about UBIT.

It is recommended that religious organizations consult with their local attorney or Certified Public Accountant if they are concerned about UBIT. 

Recommended Resources

If you found this information helpful, you might be interested in this other resource from Brotherhood Mutual:

Learn more about ministry finance and taxation in our article, How "Unrelated Business Income" May Affect Your Ministry. 

Visit our Safety Library to find other articles, publications and tools on wide range of topics relevant to your ministry. The Internal Revenue Service also has offers a helpful Tax Guide for Churches and Religious Organizations.

*Important information: Brotherhood Mutual is pleased to provide Legal Assist as a complimentary resource. The services we offer through Legal Assist are intended to provide general legal information to our current and prospective policyholders.

The information we provide is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. Accordingly, no attorney/client relationship is created through this process, and no legal advice will be provided. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.