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How the IRS Determines If a Church Must Pay UBIT

A look at why the unrelated business income tax exists, plus a case review that shows how the resulting tax code was applied to one church.

Last Reviewed: February 11, 2020
How the IRS Determines If a Church Must Pay UBIT
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Prior to 1950 a growing number of tax-exempt organizations were engaged in profitable business activities in competition with taxable organizations. In some cases these business activities had little or no relation to the exempt organization's purposes other than the production of revenue to carry out those purposes.

This led Congress, in the Revenue Act of 1950, to impose a tax—the unrelated business income tax ("UBIT")—on the "unrelated business income" of certain exempt organizations. The Act exempted certain organizations from the unrelated business income tax, including churches and conventions or associations of churches.

It soon became apparent that many of the exempted organizations were engaging in unrelated businesses. For example, churches were involved in publishing, hotels, factories, radio and television stations, parking lots, newspapers, ...

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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  • October 1, 2010
  • Last Reviewed: February 11, 2020

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