UDFI for Exempt Organizations: Reporting Unrelated Debt-Financed Income on Form 990-T

Avoiding Costly Allocation Mistakes in the Sale of Encumbered Property

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

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Conducted on Wednesday, February 3, 2016

Recorded event now available

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Course Materials

This course will provide tax professionals and advisers to exempt organizations with a thorough and comprehensive practical guide to calculating and reporting unrelated debt financed income (UDFI) and unrelated business taxable income (UBTI) rising from the sale of property financed with debt. The panel will discuss the UDFI rules on encumbered property, and will delve into examples of how to calculate and apportion proceeds and income between exempt purpose and unrelated business for sales of mixed-use property, with illustrations on how to report UDFI income and deductions on Form 990-T, Exempt Organization Business Income Tax Return.

Description

While exempt organizations are generally not subject to income tax, many nonprofits receive business income that is subject to unrelated business income tax (UBIT), which the exempt org must report on a Form 990-T, Exempt Organization Business Income Tax Return. Excess UBTI can jeopardize a nonprofit organization’s exempt status.

If the exempt organization realizes income through the disposition of either real property or tangible personal property held for investment and financed by acquisition debt, the entity must treat all or part of the income and deductions connected with the encumbered property as UBTI. Tax advisers must know how to identify UDFI and the numerous exceptions.

The calculations to determine UDFI and report it on Schedule E of Form 990-T can be very complex and challenging. As the nature of nonprofit organizations evolves, and the distinction between exempt and for-profit organizations becomes less certain, tax advisers of nonprofit entities can expect continued scrutiny from the IRS on UBTI. Exempt organizations must carefully review their UDFI calculations to avoid having income or expenses reclassified as taxable by the IRS.

Listen as our panel of experienced nonprofit tax advisers provides a deep dive into the rules and reporting requirements governing UBTI for exempt organizations.

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Outline

  1. Unrelated business taxable income overview
  2. Form 990-T filing thresholds
  3. Identifying transactions subject to tax as UDFI transactions
    1. Allocation of proceeds
    2. Allocation of expense deductions
  4. Calculating unrelated debt financed income (Schedule E)
  5. IRS audit “triggers” leading to increases in UBTI

Benefits

The panel will discuss these and other important topics:

  • Definitions of UBTI and Form 990-T filing thresholds
  • What constitutes reportable UDFI
  • Allocation of income and deductions in UDFI transactions
  • Reporting UDFI on Form 990-T Sch E
  • Case study with illustration including example of completed 990-T with UDFI reported

Faculty

Higgins, Garrett
Garrett M. Higgins, CPA
Partner
PKF O'Connor Davies

Mr. Higgins is Partner-in-Charge of the Exempt Organization Tax and Advisory Services Group of his firm. He provides...  |  Read More

Mills, Elizabeth
Elizabeth M. Mills
Senior Counsel
Proskauer Rose

Ms. Mills focuses her practice on both health care organizations and tax exemption issues for not-for-profit...  |  Read More

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