The IRS ruled that the rental of meeting space by a public museum did not affect its tax-exempt status and did not generate unrelated business income. The IRS concluded that museum’s rental of its meeting space furthered its exempt purpose since it attracted visitors and produced income used to fund the museum. The IRS also concluded that the rental income was not subject to the unrelated business income tax since rental income generally is “excluded determining unrelated business taxable income so long as any services [the exempt organization] might render in connection with the rental of the meeting space are those usually and customarily rendered in connection with the rental of rooms or other space for occupancy only.” IRS Letter Ruling 200222030 (2002).
Key point. Many churches rent a portion of their facilities to outside groups. This ruling illustrates that such an activity will not necessarily affect a church’s tax-exempt status or result in taxable unrelated business income. Note, however, that the exemption of “rental income” from the unrelated business income tax does not apply to “debt-financed property.” This rule is itself subject to a number of exceptions. See chapter 12 of Richard Hammar’s 2002 Church & Clergy Tax Guide for all the details.
This article first appeared in Church Treasurer Alert, August 2002.
