Opinion ID: 611056
Heading Depth: 3
Heading Rank: 1

Heading: Unrelated Business Taxable Income

Text: 11 Income received by a tax-exempt organization constitutes UBTI if the activity: 12
13
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15 United States v. American College of Physicians, 475 U.S. 834, 838-39, 106 S.Ct. 1591, 1594, 89 L.Ed.2d 841 (1986); United States v. American Bar Endowment, 477 U.S. 105, 106 S.Ct. 2426, 91 L.Ed.2d 89 (1986); §§ 511(a), 512(a); Treas.Reg. § 1.513-1(a). 8 IIAH concedes that the activity constitutes a trade or business that is regularly carried on. This appeal, then, centers on the third prong of the operational test identified above: whether the activity is substantially related to its tax-exempt purposes. 16 An organization's need for funds to further its purposes does not create the necessary substantial relationship. Treas.Reg. § 1.513-1(d)(2). The conduct of the business activities must have a causal relationship to the achievement of exempt purposes, other than through the production of income, and such causal relationship must be a substantial one. Id. For such a substantial relationship to exist, the business activities must contribute importantly to the accomplishment of the organization's exempt purposes. Id. 17 To determine whether IIAH's public insurance account activity is substantially related to its exempt purposes, we must examine the relationship between the business activities which generate the particular income in question and the accomplishment of the organization's exempt purposes. Id. § 1.513-1(d)(1). In this determination, the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt function which they purport to serve. Id. § 1.513-1(d)(3). Each case depends upon the particular facts and circumstances involved. Id. § 1.513-1(d)(2). 18 The exempt purpose of a business league is to promote some common business interest, not to engage in a regular business of a kind ordinarily carried on for profit. Treas.Reg. § 1.501-1(c)(6). Exempt activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. Id.