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Interim Guidance Provided for Tax-Exempt Organizations and UBTI

August 29, 2018
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The IRS released Notice 2018-67, which provides transition rules and interim guidance regarding the new requirement that requires tax-exempt organizations to compute unrelated business taxable income (UBTI) separately with respect to separate businesses.

Key issues addressed in Notice 2018-67:

  • Tax-exempt organizations may rely on a reasonable, good-faith interpretation, taking into account all the facts and circumstances, when determining whether the organization has more than one unrelated trade or business. The IRS will consider the use of NAICS 6-digit codes to be a reasonable, good-faith interpretation until regulations are proposed.

  • An interim rule will allow most tax-exempt organizations to aggregate UBTI from an interest in a single partnership with multiple trades or businesses. To qualify, the tax-exempt organization’s partnership interests must satisfy either a de minimis test or a control test. 

    • An interest will satisfy the deminimis test if the tax-exempt organization holds directly no more than:
      • 2% of the profits interest, and
      • 2% of the capital interest.

    • An interest will satisfy the control test if the tax-exempt organization:
      • holds no more than 20% of the capital interest, and
      • does not have control or influence over the partnership.

The IRS is soliciting comments regarding the transition rules and interim guidance it provided in Notice 2018-67. 

Click here to read Notice 2018-67