Fried & Davis - Commercial Activity

Home | Nonprofit Forum | Commercial Activity

Can a nonprofit lose its tax exempt status by charging money for products or services?

The organization needs to be operated primarily for its exempt purpose. As long as operations are primarily for exempt purposes, the organization need not fear loss of tax exempt status.

When should a nonprofit pay taxes when it charges money for some products or services?

Income is taxable if it derived from business activities that are unrelated to the organization's charitable purpose.

How can a nonprofit determine whether an activity is related to its charitable purpose?

An unrelated activity is one that does not substantially advance the exempt purposes of the organization. That is, it is an activity that the organization engages in for the purpose of earning money, rather than furthering on or more charitable programs.

How is unrelated business income tax calculated?

The income tax is calculated in the same manner as with for-profit entities. The taxes are paid using an unrelated business income tax return. Tax exempt organizations should make quarterly estimated payments of this tax.