A. Background

(1) Section 511 imposed a tax on the unrelated business taxable income as

defined by Section 512 of certain otherwise tax-exempt organizations.

(2) The IRS will generally determine an organization to be tax exempt only if its

primary purpose is to engage in the type of activity prescribed in the code Section (for example, Sections 501 or 521) under which it claims exemption.

(3) An organization isn’t generally determined to be exempt if its primary purpose is

conducting a business of a type ordinarily carried on for profit, and not the furtherance of an exempt purpose. See, for example, Section 502. If, however, the business activity is subservient or secondary to the organization’s exempt purpose and functions, exemption may or may not be established. The determination depends on whether the specific statutory provision under which exemption is sought precludes operation of a trade or business.

(4) Many exempt organizations operate trades or businesses which further their

exempt purposes. Others operate trades or businesses which have little or no relationship to their exempt purposes aside from the need for funds to carry out exempt purposes.

(5) Publication 598, Tax on Unrelated Business Income of Exempt Organizations,

gives a detailed description of Section 511 through 514.

(6) Publication 1828, Tax Guide for Churches and Religious Organizations,

includes a brief, plain-language explanation of how the unrelated provisions apply to churches and religious organizations.