Small church purchases building next door to them to control neighborhood. Have been approached to rent the building for a car detailing business. IRS says "certain rent" is taxable. Is this a 990-T reportable/taxable event? The church only owns the building ... not the new business. They hopefully will make a profit from rent income, from that business which will be regularly carried on, and the car detailing business is not substantially related to the organization's exempt business (nor is the rent income). Thanks for any advice.
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From what you're describing - this is a taxable reportable event on 990-T since the rent from the building rental is not for the benefit of the church's religious operation.
Here is an excerpt from The Tax Book P. 16-6, and 16-7 regarding unrelated business taxable income -
Unrelated Business Income Tax Return Cross References • Form 990-T, Exempt Organization Business Income Tax Return • IRS Pub. 557, Tax-Exempt Status for Your Organization Even though an organization may be recognized as tax exempt, it still may be liable for tax on its unrelated business income. Unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis for the organization’s exemption. If an organization has $1,000 or more of unrelated business income, file Form 990-T in addition to the required annual information return. Not substantially related to means the activity that produces the income does not contribute importantly to the exempt purposes of the organization, other than the need for funds, etc. Whether an activity contributes importantly depends in each case on the facts involved. A trade or business is any activity conducted for the production of income from selling goods or performing services. An activity must be conducted with intent to profit to constitute a trade or business. An activity does not lose its identity as a trade or business merely because it is conducted within a larger group of similar activities that may or may not be related to the exempt purpose of the organization. If, however, an activity conducted for profit is an unrelated trade or business, no part of it can be excluded from this classification merely because it does not result in profit. An unrelated trade or business does not include a trade or business: • In which substantially all the work is performed for the organization without compensation, • That is conducted by a 501(c)(3) or 511(a)(2)(B) organization mainly for the convenience of its members, students, patients, officers, or employees, • That sells items of work-related equipment and clothes, and items normally sold through vending machines, food dispensing facilities or by snack bars, by a local association of employees described in IRC section 501(c) (4), organized before May 27, 1969, if the sales are for the convenience of its members at their usual place of employment, • That sells merchandise substantially all of which was received by the organization as gifts or contributions, • That consists of qualified public entertainment activities regularly conducted by a 501(c)(3), (4), or (5) organization as one of its substantial exempt purposes, • That consists of qualified convention or trade show activities regularly conducted by a 501(c) (3), (4), (5), or (6) organization as one of its substantial exempt purposes, • That furnishes one or more services described in IRC section 501(e)(1)(A) by a hospital to one or more hospitals subject to conditions in IRC section 513(e), • That consists of qualified pole rentals, as defined in IRC section 501(c)(12) (D), by a mutual or cooperative telephone or electric company, • That includes activities relating to the distribution of low-cost articles, each costing $10.70 (2017) or less, by an organization described in IRC section 501 and contributions to which are deductible under IRC section 170(c) (2) or (3) if the distribution is incidental to the solicitation of charitable contributions,Uncle Sam, CPA, EA. ARA, NTPI Fellow -
Thanks, I did read all that...plus IRS pubs. Just confused when it says "certain rents" may be taxable.
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I think I disagree... see this IRS link.....Comment
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