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

Passive investment income such as interest, dividends and royalties generally is exempt from UBIT(1). However, special rules apply when an exempt organization owns an interest in a pass-through entity, such as stock in an S company or an interest in a partnership. If an exempt organization is given stock in an S corporation, all of the income attributable to the donated stock will be subject to UBIT. In addition, all of the income recognized by an exempt organization upon the sale of its stock in an S corporation is subject to UBIT, whereas the gain on the sale by an exempt organization of stock in a C corporation is not(2).