Unrelated Business Income Tax


Presented by

Tim Lundell

District Trainer

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IRS Classification

Tax Deductible





Unrelated Business

Income Tax

Filing Requirements


Financial Statements


501(c)(3) Tax Exempt


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The IRS has 29 types of 501(c) designations which grant exemption from taxes

So what designation does our Rotary Clubs fall under?

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May 13, 1958, the IRS declared Rotary

International and its clubs and districts exempt from federal income taxes under

IRC Section 501(c)(4).

IRC 501(c)(4)

Civic leagues or organizations not organized for profit but

operated exclusively for the promotion of social welfare

, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively

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Although very similar to a 501(c)(3), there is a big difference:

Social welfare organizations, cannot attract charitable donations that are deductible for income, gift, and estate tax purposes.

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Donations to your club are


deductible as charitable donations by the donor.

Membership dues may be deductible for some Rotarians as a business expense.

Rotary meetings may be deductible for

Rotarians as a Meal & Entertainment


Deductibility is determined by Rotarians status; business vs. individual

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Sponsorships may be deductible for

Rotarians as a business expenses.

Business expenses are generally preferred over charitable contributions for businesses

Ticket Sales do not have a charitable donation allocation.

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IRC Section 6113 requires certain taxexempt organizations that are ineligible to receive tax deductible charitable contributions to disclose, in “an express statement (in a conspicuous and easily recognizable format), “ the nondeductibility of contributions during fundraising solicitations.

Organizations whose annual gross receipts do not normally exceed

$100,000 are excepted from this disclosure requirement

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IRS Publication 598

– Tax on Unrelated

Business Income of Exempt Organizations

Unrelated business income is the income from a trade or business regularly carried on by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity.

Certain trade or businesses are not treated as

Membership list sales

– taxable


– taxable


– not taxable

Selling Donated Merchandise

– not taxable

Volunteer Workforce

– not taxable

UBIT is a Gray area

– seek professional assistance to assist in determination

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Form 990

Due 15 th day of the 5 th month after your fiscal year end.

December 31 st yearend, due date is May

15 th

Up to 6 month extension

Form 990-T

Unrelated business income tax returns for federal and state; same due date

Extension available, but payments are due on 15 th day of the 5 th month after your fiscal year end

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Generally Accepted Accounting Principles


Accrual-based (not cash) accounting

Income is recorded when earned

Expenses are recorded when incurred

Prepare a budget

Reconciliations should be performed monthly

Person doing books should not have check signing authority

Copies of all deposits should be made

Invoices should be properly coded and canceled

Program Services

International Service project

Community Service Projects

RYLA, Interact, other

Management and General


Event 1

Event 2


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Statement of Financial Condition

 aka

– Balance Sheet

Statement of Activities aka

– Income Statement or Profit & Loss

Statement of Functional Expenses


Management & General



Statement of Cash Flows

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Form 990-N (e-postcard)

For small tax exempt organizations where annual “… gross receipts are normally

$50,000 or less


You need basic information

– EIN, tax year, legal name and address, any other names used by the organization, name and address of the principal officer, web site (if applicable), confirmation of gross receipts normally $50,000 or less, confirmation that the organization has not terminated operations.

Form 990-EZ and Form 990

File the Form 990

–EZ when:

Gross receipts are

less than $200,000

assets are less than $500,000 and total

File the Form 990 when:

Gross receipts

equal or exceed $200,000 or

assets equal or exceed $500,000. total

Identify all income sources and classify them accordingly

Utilize professionals to assist in compliance

Utilize accounting software (

Like Quick



Ensure persons handling finances is


2 signatures on all Checks or approved memo signed by 2 members.

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To check clubs status:




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