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

In some circumstances, exempt organizations will have UBIT by owning stock in an S corporation but would not have UBIT if it directly owned the asset owned by the S corporation. For example, if an exempt organization owns a bond, all of the interest income and capital gains on its sale are exempt from any tax. However, if the exempt organization owns shares in an S corporation that owns the bond, the exempt organization’s share of the S income attributable to the interest and capital gain on the bond is subject to UBIT.