Babson Prof. Natalie Taylor, Case Director Michael G. Bust, Case Writer (with assistance from Laura Kenney, and Senior Manager, Grant Thornton)

Arthur M. Blank Center for Entrepreneurship

© Babson College, 2001.

Abstract

This management briefing discusses the history and reasoning behind the tax status of nonprofits. Most income for nonprofit organizations or 501(c) companies, as classified by the IRS, is tax exempt. Traditional nonprofits include religious, charitable and educational organizations that rely on philanthropic contributions from individuals and corporations as their primary means of support.

However, increasingly nonprofits are earning income from sources unrelated to their mission. This income is considered taxable and is subject to what the IRS calls the "unrelated business income tax (UBIT)." This briefing discusses the various criteria that the IRS uses to determine whether the income of nonprofits is taxable or tax exempt. Finally, there is a discussion of how too much UBIT, as a percent of total revenues, can endanger an organization's tax exempt status.

Location of the company: N/A

Years spanned by the case: 1913-2001

Industry segment: Nonprofits

Stage of the company: N/A

Age of the entrepreneur: N/A

Key Words: Nonprofit, UBIT, philanthropy, IRS,

DVD

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Teaching Notes

A two page case teaching package, written by Natalie Taylor, is available for this case. The teaching package includes strategies for presentation, key concepts, and suggestions for the most effective ways to work this case into a course.