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In Alaska operators of pull tabs are required to donate a

portion of the proceeds to...
In Alaska operators of pull tabs are required to donate a portion of the proceeds to a 501c3 organization. Is the receipt of these donations by a 501c3 considered Unrelated Trade or Business Income?
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: A 501c3 organization in Alaska receives donations from an operator of pull tabs, as stipulated in state law. Are the donations received considered Unrelated Trade or Business Income by the charity receiving the donation?
JA: Is there anything else important you think the Accountant should know?
Customer: That sums up my question.
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Answered in 2 minutes by:
11/16/2017
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
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Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Hello. Thank you for choosing this Q&A service for assistance. My name is***** will check on this and get back to you shortly.

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My apologies, I am not finding any definitive information on this matter, therefore I will opt out and release the inquiry back into the queue so that someone else can possibly assist.

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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 805
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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Hi! Different expert here.

This is NOT Unrelated Trade or Business Income (UTBI). Under Internal Revenue Code §512, UTBI is income that is 1) "a trade or business", 2) it is regularly carried on, and 3) it is not substantially related to furthering the exempt purpose of the organization.

In your case, the activity of receiving income from the pull tabs is not a "trade or business". It is accepting contributions. The exempt organization is not working or doing anything to receive the funds, they are being given to them by operation of law, not an activity by the exempt organization. Additionally, it is not regularly carried on. The income would more than likely come in sporadically based on sales.

So this is not UTBI for two reasons - it is not an activity of the exempt organization, and it is not regularly carried out by the exempt organization.

Where you see UTBI is where exempt organizations try to do the work of for-profit companies. For example, if a university (a tax exempt organization) opened a pizza parlor for the students on campus, the income from the pizza parlor would be UBTI because the sales of pizzas is a trade or business (there are companies that do it for a living), it is regularly carried out, and selling pizzas is not related to a university's tax exempt purpose of educating students. So the income here would be UBTI.

I hope this answers your question. If you have any more, please feel free to ask and I will be happy to answer.

Thanks! Have a great week!

Roger

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Customer reply replied 29 days ago
That is also my thoughts about it. Thank you for confirming!

You are very welcome!

Please do not forget to rate me, as this is how questions are closed.

Thanks!

Roger

taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 805
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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Customer reply replied 29 days ago
Appreciate your confirming my own analysis of the issue. I left you a small tip. It's been a long day.
Thanks again, Roger!

Thank you as well! I am about to go to bed. Good night.

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taxmanrog
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