State Tax Treatment of UBTI for Exempt Organizations: Calculations, Conformance, and Apportionment

Navigating States' Partial- or Non-Conformance With Federal Treatment; Multistate Apportionment Rules

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE video webinar with Q&A

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Conducted on Wednesday, September 21, 2022

Recorded event now available

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Course Materials

This course will provide nonprofit tax professionals and advisers with a practical guide to various states' rules governing unrelated business income tax, which U.S.-based tax-exempt organizations must pay on unrelated business taxable income (UBTI). The webinar will focus on the standards and guidelines for determining whether income is UBTI and thus subject to tax, identify those states that deviate from federal treatment, and list those states whose definitions conform to federal rules but have different calculation bases.

Description

A significant challenge for exempt organizations is navigating federal and state rules on UBTI. The federal rules are often complex even with existing guidance; however, the variances in how states treat UBTI create additional difficulties for advisers to nonprofits. While most states conform to the federal government in both classifying an organization as tax exempt and in defining UBTI, there are numerous deviations from federal treatment.

With very few exceptions, most states impose a state-level tax on UBTI. Many of these states start with the federal definition of UBTI, but make state-specific modifications, generally in the form of required "add-backs." Additionally, many states do not allow exempt entities to carry-back net operating losses; some of these states permit loss carry-forwards for UBTI calculation purposes.

Perhaps the most complicated task for exempt organizations operating in multiple states is apportioning UBTI between the various states in which the nonprofit operates. Many states require exempt entities to use different apportionment formula approaches than they impose on for-profit companies. Advisers to exempt organizations must be able to reconcile various apportionment formulas and recognize where a state requires a specific apportionment requirement for UBTI.

Listen as our panel of experienced nonprofit tax advisers provides a practical guide to navigating multistate tax treatment of UBTI for exempt organizations.

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Outline

  1. Federal treatment of UBTI
    1. Identifying UBTI
    2. UBTI calculations and schedules
    3. Tax computation
    4. Allocation of expense deductions
  2. State treatment of UBTI
    1. States not conforming with federal exempt org classification
    2. States that tax UBTI
    3. Common states' adjustments to federal UBTI calculations
    4. Range of rules for NOL carry-backs and carry-forwards
    5. Apportionment challenges
    6. Pass-through considerations
    7. Section 512(a)(6) Siloing unrelated trade and businesses

Benefits

The panel will discuss these and other important topics:

  • What states deviate from federal treatment of UBTI?
  • What states generally conform to federal UBTI calculations but with add-backs?
  • State deviations in NOL carry-back and carry-forward treatment for UBTI
  • Which states require a different formula for apportioning UBTI than the one applicable to for-profit commercial entities?

Faculty

Flannery, Julia
Julia Flannery

Tax Senior Manager
RSM US

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Kuhn, Nancy
Nancy Ortmeyer Kuhn

Director
Jackson & Campbell

Ms. Kuhn specializes in Federal and state tax matters and is the Chair of  the firm's Tax Group. She has...  |  Read More

Lawler, Patrick
Patrick Lawler

Senior Manager, State and Local Tax
RSM US

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 |  Read More

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