Part VIII. Exploited Exempt Activity Income, Other Than Advertising Income

Exempt organizations that have gross income from an unrelated trade or business activity that exploits an exempt activity (other than periodical advertising income reportable on Schedule A (Form 990-T), Part IX) should complete Schedule A (Form 990-T), Part VIII. See Regulations section 1.513-1(d)(4)(iv) for a definition of exploited exempt activity. Report income from advertising other than in a periodical on Schedule A (Form 990-T), Part VIII.

Line 1. Briefly describe the exempt activity being exploited in an unrelated trade or business activity.

Line 3. An exempt organization may take all deductions directly connected with the gross income from the unrelated trade or business activity.

Line 4. Subtract directly connected deductions from the gross unrelated business income. If unrelated business income exceeds the directly connected deduction, the exempt organization may take into account all deductible items attributable to the exploited exempt activity, with the following limitations.

1. Reduce the deductible items of the exempt activity by the income from the activity.

2. Limit the net amount of deductible items arrived at in item 1 above for the exempt activity to the net unrelated business income from the exploited exempt activity.

3. Exclude income and expenses of the exempt activity in figuring a loss carryover or carryback from the unrelated trade or business activity exploiting the exempt activity.

4. Exclude deductible items of the exempt activity in figuring unrelated trade or business income from an activity that isn’t exploiting the same exempt activity.

As a result, the net includible exploited exempt activity income is the UBTI minus the excess of the exempt activity expenses over the exempt activity income. If the income from the exempt activity exceeds the exempt activity expenses, don’t add that profit to the net income from the unrelated business activity. Attach a separate statement showing the computation.