On the Record: All that Glitters Isn't Tax Exempt

An exempt organization should be aware that if it is the remainder beneficiary of a CRUT and the CRUT receives unrelated business income, the CRUT will be subject to UBIT and, as a consequence, the potential remainder interest might be diminished.

Danger to exempt status
Finally, too much UBIT could cost an organization its exempt status. The permitted purposes of an exempt organization are spelled out within the Internal Revenue code and regulations, and those purposes do not include maintaining a business. The regulations stipulate that an organization will be exempt only if it is “both organized and operated exclusively” for exempt purposes and that only an “insubstantial part of its activities” can be unrelated to its exempt purposes. If not, the IRS could treat the organization as a business rather than an exempt entity.