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Unrelated Business Income Tax

Frequently Asked Questions:

  1. What is UBIT?
  2. How do I determine if I am subject to UBIT?
  3. How do I get a copy of Michigan State University's Form 990-T?
  4. Are there any EXCEPTIONS?
  5. What are some examples of university activities that the IRS monitors for unrelated business income?
  6. What deductions can be used to offset taxable income?
  7. Has MSU ever been audited by the IRS for UBIT?
  8. Are Research or Service Center activity (including Testing Services) subject to UBI?

  1. What is UBIT?

    "Unrelated Business Income TAX" is administered at the corporate tax rate. Unrelated business taxable income means the gross income derived by an organization from any unrelated trade or business regularly carried on by it, less the deductions.

  2. How do I determine if I am subject to UBIT?

    MUST MEET ALL THREE CRITERIA!

    1. Be a trade or business
    2. Regularly carried on AND
    3. Does not contribute in an important, causal way to the accomplishment of the organization’s exempt purpose.

    Determining whether or not the income from an activity is taxable can be difficult. The tax code has many exceptions and rules that are too extensive to include here. We will provide you with the basic principles but encourage you to call our office and discuss your situation with us.

  3. How do I get a copy of Michigan State University's Form 990-T?

    To request a copy of the 990-T please contact Beth Powers, Financial and Cost Analysis.

    Phone: 517-884-4279.
    email: epowers@ctlr.msu.edu

  4. Are there any EXCEPTIONS?

    Yes! A partial list includes but is not limited to:

    • Dividends, interest, capital gains and similar portfolio income
    • Royalties
    • Rents from real estate
    • Research
    • Business operated for the convenience of students or employees
    • Corporate Sponsorships, if properly structured
    • Substantially all work performed without compensation (volunteer)
    • Merchandise sold was originally received by university as gift or contribution
    • Unique Service

  5. What are some examples of university activities that the IRS monitors for unrelated business income?

    • Golf Course --- Golf Course Food Service
    • Partnerships
    • Alumni Association Travel Tours
    • Computer Laboratory
    • Special Events (rock concerts, etc.) at Student Activity Center
    • Ice Arena
    • Indoor Tennis Facility
    • Summer Conferences
    • Television Production Services
    • Concessions
    • Game Program Advertising
    • Corporate Sponsorships

  6. What deductions can be used to offset taxable income?

    Both direct and indirect costs which are "proximate and primary" to the generation of the taxable income.

  7. Has MSU ever been audited by the IRS for UBIT?

    • MSU has been audited 3 times
    • With proper planning and processes, MSU departments are in compliance with IRS UBIT standards.

  8. Are Research or Service Center activity (including Testing Services) subject to UBI?

    The IRS’ view on research and UBI is very complex, below are different areas that must be reviewed to determine if UBI exists.

    First and foremost it must meet the three prong UBI test

    • Is it a trade or business (i.e. for a profit)
    • Is it regularly carried on
    • Is the activity unrelated to educational or research mission of the University

    When determining whether the last prong of the test is met items that should be considered:

    • Are students involved? Not merely were students hired, but more to the point were students, whether graduate or undergraduate, involved in furtherance of their degree.
    • Would the activity be considered “scientific research” in the “public interest”? The IRS does not give a clear definition as to what “scientific” means. They do state that “scientific research” does not include activities ordinarily carried on that are incidental to commercial or industrial operations, such as testing services, inspection of materials or products, or designing or construction of equipment. The closer the particular technology is to market and the more pertinent the research activity is to the product’s commercialization the more likely it is unrelated. Examples of benefiting the “public interest” can mean that the results can be published, the activity will help cure a disease, etc.

    The IRS also provides some exclusions from UBI in this particular area:

    • If the research is performed for a governmental entity.
    • If the research is performed by a college or university.

    It is suggested that when setting up billing rates (see the Service Center Billing Rate Policy) you review your activity and document whether or not UBI is a consideration.

If you have any questions, please contact Beth Powers at:

phone: (517) 884-4279
fax: (517) 355-1706


Michigan State University