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

Despite the passive investment exception, the income attributable to an exempt organization’s investment in a limited liability company or partnership could be subject to UBIT. In the case of an investment in a partnership, either as a general partner or as a limited partner, or in an LLC, an exempt organization must treat its share of the partnership or LLC income or loss as if it had conducted the business in which the partnership or LLC engages. Therefore, if the partnership or LLC actively conducts a business, the exempt organization’s income attributable to its ownership interest will be treated as UBIT, even if the income is not distributed to the exempt organization, and even if the exempt organization is merely a limited partner or a passive member of an LLC.