Unrelated Business Income Taxation of Charitable Organizations (USA) - Ein Research Guide (engl.)

Unrelated Business Income Taxation of Charitable Organizations – A Legal Research Guide – Stefan Winheller San Francisco last update November 8, 2004 I Table of Contents I. INTRODUCTION 1 A. Objective and Scope of this Guide 1 B. Legal Background 1 1. Tax-Exemption of Charitable Organizations 1 2. Partial Taxation of Unrelated Business Income of Charitable Organizations 2 3. Development of the UBIT Law 3 (a) The Law before the Introduction of the UBIT 3 (b) Rationales for the Introduction of the UBIT rules 3 (c) The First UBIT Rules 4 (d) Amendments 4 C. General Research Strategies 5 II. PRIMARY SOURCES 6 A. Statutes 6 1. Research Sources 6 2. The UBIT Provisions of the I.R.C. 6 (a) I.R.C § 511. Imposition of Tax on Unrelated Business Income of Charitable … Organizations 6 (b) I.R.C. § 512. Unrelated Business Taxable Income 6 (c) I.R.C. § 513. Unrelated Trade or Business 7 (d) I.R.C. § 514. Unrelated debt-financed Income 8 (e) I.R.C. § 515. Taxes of Foreign Countries and Possessions of the United States 8 (f) Amendments as to I.R.C. §§ 511 – 515 8 (1) I.R.C. § 511 8 (2) I.R.C. § 512 9 (3) I.R.C. § 513 9 (4) I.R.C. § 514 10 B. Legislative History 10 1. Research Sources 10 2. Legislative History for P.L. 105-34 11 (a) CIS Online 11 (b) U.S.C.C.A.N. 11 II C. Cases 12 1. Research Sources 12 2. A Small Selection of Important Cases 13 (a) Cases Dealing with the History of the UBIT 13 (1) ´Destination of Income Test´ before the UBIT was Introduced 13 (2) Rationales for the Introduction of the UBIT 13 (3) Rationales for Tightening the Debt-Financed Income Rules in 1969 13 (b) Today´s Law 14 (1) The Nature of an Unrelated Trade or Business 14 (2) Exclusions from Unrelated Business Taxable Income 15 (3) Computation and Planning Issues 15 (4) Unrelated Debt-Financed Income 16 (5) Partnerships and S-Corporations 16 D. Regulations 16 1. Research Sources 16 2. The Relevant Regulations for I.R.C. §§ 511 to 515 17 E. Administrative Documents 18 1. Research Sources 18 2. Exemplary List of useful Administrative Documents 19 III. SECONDARY SOURCES 20 A. General Secondary Sources 20 1. “In a Nutshell”-Books/Dictionaries 20 2. Books and Treatises 20 B. Specific Secondary Sources 21 1. Legal Encyclopedias 21 (a) American Jurisprudence (Am. Jur.) 21 (b) Corpus Juris Secundum (CJS) 21 (c) American Law Reports (A.L.R.) 22 2. Annotations / Explanations 22 3. Law Review Articles and other Periodicals 22 (a) Westlaw / LexisNexis 22 (b) Other Databases 23 4. Newsletters and Practice/Planning Guides 23 IV. COMPUTERIZED RESEARCH 25 III A. Online 25 1. Lexis and Westlaw 25 2. Other Internet Sources 25 (a) Findlaw.com / LexisOne.com 25 (b) Nonprofitlawcenter.com 26 (c) Google.com etc. 26 3. Library Catalogs 26 (a) Offline Libraries 26 (b) Online Library 26 B. Offline 27 V. OTHER EXPERT KNOWLEDGE 28 I. Introduction 1 I. Introduction A. Objective and Scope of this Guide The federal law of tax-exempt organizations is a wide one and the same is true of the rules that provide for the partial taxation of these organizations. Thus, the guide at hand does not intend to give a comprehensive overview of the law of all different types of tax-exempt organizations but is rather limited to the treatment of charitable organizations. This guide´s objective is first to provide a short overview of the taxation of charitable organizations under the unrelated business income tax (commonly known as UBIT) rules. Second and primarily, it shall provide useful assistance for those who want to go further into this exciting area of law or – as Bruce Hopkins calls it – “the dreadnought of the law of tax-exempt organizations”1. B. Legal Background 1. Tax-Exemption of Charitable Organizations Subchapter F of Chapter 1 of Subtitle A of the Internal Revenue Code2 (26 U.S.C. or I.R.C. and “the Code”, respectively) deals with organizations exempt from Federal income tax. To the extent that it is of interest as to the narrow topic of this research guide, I.R.C. § 501 reads as follows: § 501. Exemption from tax on corporations, certain trusts, etc. (a) Exemption from taxation An organization described in subsection (c) … shall be exempt from taxation under this subtitle …. *** (c) List of exempt organizations The following organizations are referred to in subsection (a): *** 1 Bruce R. Hopkins, The Law of Tax-Exempt Organizations, p. 40, for full citation see chapter III.A.2 on page 20. 2 The Code´s today´s status goes back to the Tax Reform Act of 1986 as amended, P.L. 99-514, 100 Stat. 2085, approved 10/20/1986. I. Introduction 2 (3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (…), or for the prevention of cruelty to children or animals …. Usually, the organizations mentioned in I.R.C. § 501(c)(3) are simply referred to as charitable organizations.3 2. Partial Taxation of Unrelated Business Income of Charitable Organizations Charitable organizations are subject to tax, however, if and to the extent that they are generating net income derived from unrelated business activities, i.e.