Gift Shop UBIT. A local exempt organization that trains at-risk youth for employ

Question

Gift Shop UBIT. A local exempt organization that trains at-risk youth for employment has an annual operating budget of $300,000, which includes revenue from operating a gift shop in a nearby hotel lobby. Gift shop sales result in a profit of $15,000. The organization has $6,500 of endowment income that it earns on permanently restricted net assets. The income from both the gift shop and the endowment is used to support the organizations exempt purpose. The balance of $278,500 required for annual operations is provided through public support and charges for services. Required a. Calculate the UBIT if the corporate tax rate is 15 percent on the first $50,000 of net income and 25 percent on the next $25,000 of income. b. Assume that the endowment income is reinvested rather than being used to support annual operations. Calculate the amount of unrelated business income.

Explanation / Answer

As per earlier answer:
Part A:
Total UBI = 30000 - 278500
= $21500
so, UBI tax = 15%
= 21500 * 15 / 100
=$ 3225

Part B:
Assuming that the endowment income is reinvested rather than being used to support annual operations
UBI = 21500 + 6500
=$ 28000
Due to the fact that this income comes form a non tax excluded source.

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