United States:
Unrelated Business Income Tax (“UBIT”) Silos
21 May 2021
Adler & Colvin
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The Department of Treasury has now finalized the regulations on UBIT silos.
At the end of 2017, Congress amended the UBIT rules to include
new Section 512(a)(6). Prior to 2018, exempt organizations
could offset all of their unrelated business income against all of
their losses from unrelated business activities and pay tax only on
the overall net gain, if any. The silo rules were designed to
isolate each unrelated business activity and prohibit an
organization from using losses from one activity against gains from
another.
As is often the case with tax law, however, the devil is in the
details. The IRS released interim guidance in Notice 2018-67
in August 2018 and proposed regulations in April 2020. For
those of you who have been tracking the guidance, the final
regulations adopt most, but not all, of the proposed regulations.
For example, an exempt organization’s unrelated
activities will be classified based on two-digit NAICS codes. The
regulations also provide special rules for investments in
partnerships and limited liability companies, where the income from
the partnership or LLC is reported back up to the exempt
organization and taxable to it.
A more detailed analysis of the extensive regulations is beyond
the scope of this post, but the message for our friends and clients
is this: if you have unrelated business income activities or
significant investments in partnerships, talk to your tax return
preparer or attorney now so that you can be prepared for how to
track and report under these new regulations.
Originally Published 30 November 2020
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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