• Key point. Federal law imposes a tax on the unrelated business income of churches and other tax—exempt organizations. There are some exceptions to this tax, including the sale of books that directly promote a church’s tenets.

IRS rules that a religious organization’s sales of books by its founder did not generate unrelated business income. The IRS noted that the books offered for sale provided information on the doctrine and principles constituting the basis for the religious beliefs of the organization’s members. The IRS further noted that the federal tax on unrelated business income does not apply to income generated from activities that are substantially related to an exempt organization’s exempt purposes. It concluded: “You will offer for sale books written by your founder. The books offered for sale are intended to provide additional information about your religious doctrine and principles. The books will be used to educate your members and prospective members about the tenets of your religion. Therefore, the sale of books written by your founder will be substantially related to the accomplishment of your religious purposes … Accordingly, this activity will not constitute an unrelated trade or business.” IRS Letter Ruling 9535050. [ Federal Tax on Unrelated Business Income of Churches]

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