New Guidance Requirements for Reporting UBTI by Separate Trade or Business Activity
The Tax Cuts and Jobs Act of 2017 added section 512(a)(6), which requires any exempt organization with more than one unrelated trade or business to report the net income from each trade or business activity separately and no longer allows a net loss from one activity to offset income from another activity.
Notice 2018-67 provided transition rules and interim guidance regarding how to define trade or business activity, including the use of six-digit NAICS codes as well as special rules for categorizing partnership interests as a single investment activity. Last month, the Treasury Department and the IRS issued long-awaited proposed regulations to further outline how to apply section 512(a)(6), incorporating comments received regarding Notice 2018-67.
Changes from the Notice include the use of two-digit NAICS codes (rather than six) and the removal of the requirement to aggregate certain related-party interests in partnerships with those held by the exempt organization for purposes of determining whether partnership interests can be aggregated into a single investment activity.
For tax years beginning before the date the final regulations are issued, an exempt organization may rely on one of the following:
- A reasonable, good-faith interpretation of sections 511 through 514, considering all the facts and circumstances, when identifying separate unrelated trades or businesses for purposes of section 512(a)(6).
- The proposed regulations in their entirety.
- Notice 2018-67.
The proposed regulations in their entirety can be viewed here. Written or electronic comments can be submitted to the IRS by June 23, 2020.