Will our nonprofit incur UBIT if we sell goods with our logo online?

QUESTION OF THE MONTH: SEPTEMBER 2019

If a significant relationship exists between a tax-exempt organization's exempt purpose or mission and the merchandise it sells, the income from such sales is not Unrelated Business Inomce.

For example, In IRS Revenue Ruling 73 104, 1973-1 C.B. 263, the IRS ruled that the sale of greeting card reproductions of art works by an art museum exempt from tax under section 501(c)(3) of the Code did not constitute unrelated trade or business. The art museum sold cards through a shop in the museum and through a catalogue which solicited mail orders. The rationale of the ruling was that the card sales contributed importantly to the achievement of the museum's exempt educational purposes by stimulating and enhancing public awareness, interest, and appreciation art.

Please keep in mind that prior IRS rulings have deemed sales made by an exempt organization to the public through its website, print catalog, and through unrelated retail outlets as UBI where the sales did not contribute importantly to the organization's mission. The sales in question closely resembled items sold in an exclusively commercial fashion and imparted little or no mission-related content. Your nonprofit will want to make sure the items sold do not serve a commercial purpose.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.