Why is ubti bad

While nonprofits are generally exempt from income taxes, nonprofits must pay taxes at the normal corporate rates on their UBTI. UBTI is income from the conduct of any trade or business not substantially related to the exercise or performance by such organization of its charitable purpose.

UBTI rules were enacted to prevent tax exempt organizations from competing unfairly with businesses whose earnings are taxed. Here, the nonprofit licensed its name, logo and magazine to a publisher in exchange for a royalty payment equal to a percentage of the net income the publisher earned for publishing the magazine. This percentage of the capital gain is taxable.

The remainder is not UBTI and therefore not taxable. The preparer needs to contact the partnership directly to obtain the percentage. The statute of limitation for Forms T for the year ended Dec. In addition, the amount of work required to review the Forms T is significant, particularly when the preparer for the broker refuses to provide documentation underlying the tax return. The engagement cost should be weighed in comparison with the tax paid by the IRA holder before commencing the work.

Remember that the fiduciary is responsible for reviewing and signing the amended return, not the IRA owner. This can create a significant time delay in the filing of the amended return.

Typically, the fiduciary and the original preparer will require documentation of any proposed corrections. Since the fiduciary is not a tax professional, he or she may even ignore an amended return completed by the client's accountant and have the original preparer complete it with the corrected information.

If the tax was significant on the original return, it is worth a second look as to the reasonableness of the amounts reported. Janet C. To comment on this article or suggest an idea for another article, contact Sally Schreiber, senior editor, at Sally.

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