Unrelated Business Income
General Guidance for Unrelated Business Income Tax (UBIT)
George Mason University is exempt from taxation under Section 115 of the Internal Revenue Code. However, the university is required to pay Federal income tax on net income from activities unrelated to the exempt mission of the university: education, research and public service. It is important that all unrelated business activities of the university be reported on the Federal tax return. The Internal Revenue Service can assess costly penalties and interest for underpayment of taxes.
Each College, Department, Center, and Institute must also segregate their accounting for corporate sponsorship agreements. Please keep in mind that there may be both gift and taxable corporate sponsorship components of this income, depending on the terms of the contract.
The following three elements must be considered when determining if an activity may be subject to unrelated business income tax (UBIT).
The activity must:
- Be conducted as a trade or business, AND
- Be regularly carried on by the university, AND
- Not be substantially related to the university’s tax-exempt purpose.
Trade or Business: Includes any activity carried on for the production of income from selling goods or performing services. Generally, a trade or business has a profit motive.
Regularly Carried On: UBIT applies only to a business activity that is regularly carried on, as opposed to transactions that are only sporadic or infrequent. An activity is considered regularly carried on if it is conducted with a frequency and manner comparable to a similar activity conducted by a for-profit (taxed) business.
Not Substantially Related: The activity must not be substantially related to the exempt mission of the university. To decide if an activity is related or unrelated, determine the nature of the activity and how essential it is for accomplishing the mission of the university including education, research and public service.
For additional information and examples of related and unrelated activities please see the UBI Guidelines.
UBI Questionnaire and Certification
The UBI Questionnaire must be completed by the department annually. Consult the UBI Guidelines to determine if the business activity is unrelated and must be reported. Once all UBI activity has been entered into the Questionnaire, prepare a summary of activity using the UBI Certification document. A senior fiscal manager for the college/department must sign and date the UBI Certification and submit the form to the International Tax Office, MS 4B2 or firstname.lastname@example.org.