The UC Business and Finance Bulletins A-61, Policy on Unrelated Business Income and Expense, is the policy of the University to comply with the IRS regulations, which includes filing the Exempt Organization Business Income Tax Return (IRS Form 990-T) for Unrelated Business Income Taxes (UBIT).
An activity will be subject to unrelated business income tax if it meets the following criteria: (1) it is a trade or business, (2) it is “regularly carried on”, and (3) it is not substantially related to the organization's exempt purpose (aside from the need of the organization to raise funds).
Pursuant to the Policy on Unrelated Business Income and Expenses, department head responsibilities include:
- Ensure that income and expenses are distributed properly between the department’s exempt functions and unrelated functions.
- Ensure that detailed records are maintained that segregate the department’s unrelated and related income if a unique revenue account is not assigned to the activity.
- Ensure that costs associated with teaching, research, or other exempt activities of the department are not allocated to the publication activities.
- Familiarize themselves with unrelated business income guidelines.
- Notify the campus tax coordinator about activities which generate over $10,000 of outside revenue.
- Consult with the campus tax coordinator when planning an activity that has unrelated business income tax potential.
To comply with the last two bullets above, department staff should complete the Nonfinancial Questionnaire (NFQ) (PDF) and the department head should review and approve the NFQ. Then the NFQ should be sent to General Accounting (the designated campus tax coordinator). The NFQ provides the basis for establishing the tax status of an activity and indicates fulfillment of the last two bullets. The department staff should complete a questionnaire for any of the following types of activities:
- Each “new” activity initiated during the current year with a potential for generating unrelated business income;
- Any activity reviewed in a prior reporting year that has changed its mode or scope of operations during the current year, and
- Highly visible activities (e.g., advertising, facilities usage, joint venture, printing, lab rental, services provided to general public, etc.) that are similar to activities determined to be unrelated at another campus or at other universities.
- Revenue agreement that is expected to generate revenue greater than $10,000.
For additional information, the Policy on Unrelated Business Income and Expenses can be found in the UCOP website along with the UBIT Nonfinancial Questionnaire and UBIT Nonfinancial Questionnaire Instructions (PDF). Departments generating UBIT liability may be required to contribute to UBIT payments.