Unrelated business income tax (UBIT) is an income tax on the unrelated business income (UBI) of churches and other tax-exempt charities.
UBI generally is income from the operation of a trade or business that is regularly carried on.
Seven things every pastor should understand about UBIT:
- This isn’t about profit—it’s about activity.
A church can owe UBIT even if an activity supports ministry goals or raises money for good causes. If the activity is a regular trade or business and not substantially related to the church’s exempt purpose, the Internal Revenue Service (IRS) may treat the income as taxable. - “Occasional” can still be considered regular.
Repeated fundraisers, rentals, or sales—even if seasonal or part-time—may qualify as “regularly carried on.” Frequency and consistency matter more than intent. - Rent isn’t always tax-free.
Rental income is often exempt, but not always. Providing services (cleaning, staffing, event setup) or renting debt-financed property can turn otherwise exempt rental income into taxable UBI. - Volunteers don’t automatically eliminate UBIT risk.
Income may be exempt if substantially all the work is performed by volunteers—but that standard is higher than many churches assume. Involvement by a few paid staff can change the analysis. - Advertising is different from sponsorships.
Selling ads (logos, promotions, calls to action) in a church publication or online can generate UBI. True sponsorships that simply acknowledge donors are usually not taxable—but the line between the two is easy to cross. - UBI can affect more than taxes.
Too much unrelated business activity can raise red flags about whether the church is operating primarily for exempt purposes—especially if it becomes a major focus or revenue source. This can affect things like sales and property tax exemptions, for example. - IRS filings may be required.
Churches are not required to file an annual Form 990 or the related Form 990-T. However, UBI over certain revenue thresholds can trigger filing requirements, penalties, and interest if ignored. Additional state-related requirements and filings also may emerge.
Bottom line for churches: UBI is highly fact-specific. Before starting new income activities—or assuming old ones are safe—church leaders should slow down, ask questions, and consult trusted tax guidance tailored to churches.
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