B. Relevant Terms

(1) Unrelated business taxable income is the gross income derived by any tax exempt organization from any unrelated trade or business (as defined in Section 513) regularly carried on by it with certain modifications and deductions

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set forth in Section 512. See Section 512(a)(1). See Part III of this document for further discussion.

(2) Trade or business for purposes of Section 513, has the same meaning as it

has in Section 162. It generally includes any activity carried on for the production of income from the sale of goods or performance of services. See Treasury Regulations (Treas. Reg.) 1.513-1(b). See Part II.A of this document.

(3) Substantially related: Generally, gross income derives from an "unrelated

trade or business" within the meaning of Section 513(a) if the conduct of the trade or business which produces the income isn’t substantially related (other than through the production of funds) to the purposes for which exemption is granted. The presence of this requirement necessitates an examination of the relationship between the business activities generating the income in question and the accomplishment of the organization's exempt purposes. Trade or business is related to exempt purposes, in the relevant sense, only where the conduct of the business activities has causal relationship to the achievement of exempt purposes (other than through the production of income); and it is substantially related, for purposes of Section 513, only if the causal relationship is a substantial one. Thus, for the conduct of trade or business from which a particular amount of gross income is derived to be substantially related to purposes for which exemption is granted, the production or distribution of the goods or the performance of the services from which the gross income is derived must contribute importantly to the accomplishment of those purposes. See Treas. Reg. 1.513-1(d)(1). See Part II.C of this document for further discussion.

(4) Regularly carried on: Business activities of an exempt organization are

regularly carried on if they show a frequency and continuity, and are pursued in a manner similar to, comparable commercial activities of nonexempt organizations. See Treas. Reg. 1.513-1(c). See Part II.B of this document.

(5) Debt-financed property, as defined in Section 514(b), means any property

which is held to produce income and with respect to which there is an acquisition indebtedness at any time during the taxable year (or, if the property was disposed of during the taxable year, with respect to which there was an acquisition indebtedness at any time during the 12-month period ending with the date of such disposition) See Part V. of this document. The exceptions to this rule are discussed in Part V.H. of this document. See also Section 514(b) and Treas. Reg. 1.514(b)-1.

(6) Acquisition indebtedness is defined in Section 514(c), with respect to any

debt-financed property, as the unpaid amount of:

a. The indebtedness incurred by the organization in acquiring or improving

such property (see Section 514(c)(1)(A)),

b. The indebtedness incurred before the acquisition or improvement of such

property if such indebtedness wouldn’t have been incurred but for such acquisition or improvement (see Section 514(c)(1)(B)), and

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c. The indebtedness incurred after the acquisition or improvement of such

property if such indebtedness wouldn’t have been incurred but for such acquisition or improvement and the incurrence of such indebtedness was reasonably foreseeable at the time of such acquisition or improvement. See Section 514(c)(1)(C) and Treas. Reg. 1.514(c)-1. See also Part V.F. of this document for further discussion.