Unrelated Business Income Tax (UBIT)
Vanderbilt University is an exempt organization under 501 (c) (3) of the internal revenue code, i.e., Vanderbilt University is not required to pay Federal income tax on income related to its exempt purposes including its primary mission activities of education, research, and patient care. However, the University may engage in other activities that do not directly relate to exempt purposes, thus generating unrelated business income (UBI) on which it is subject to income tax under Section 511 of the Internal Revenue Code (IRC). This section of the IRC is primarily designed to prevent tax exempt organizations from having an unfair advantage compared to for-profit business that do pay tax on income generated in the same manner.
To generate unrelated business income (UBI), a revenue-producing activity must meet a three-part test:
- The activity must be a "trade or business"
- The activity must be "regularly carried on" and
- The conduct of the activity must be "not substantially related" to a tax-exempt purpose.
In addition to Federal income taxes, UBI is also subject to state income taxes. The University Finance Office is responsible for annually filing the federal and state returns and remitting the taxes due.
For specific questions, please contact Wes Cothron.