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

What UBIT is not
Numerous exceptions to the basic UBIT rule exist. The most common are:

• a business conducted substantially by volunteers, such as a PTA conducting a bake sale;

• a business conducted by a 501(c)(3) organization, such as a college or university, primarily for the convenience of its members, students, patients, officers or employees (a laundry service conducted by a university, for example); and

• an organization selling merchandise that has been donated for the purpose of sale (such as a school-operated thrift store or a bingo event).

All gains from the sale, exchange or other disposition of property other than inventory and property held primarily for sale to customers in the ordinary course of trade or business is not subject to UBIT. Consequently, the sale by an exempt organization of its investment portfolio is exempt from the tax.