What is an example of unrelated business taxable income (UBTI)?

Unrelated business taxable income (UBTI) refers to income generated by a tax-exempt organization from a regular business activity that is not related to its exempt purpose. For a tax-exempt organization, income that is considered UBTI is subject to taxation, as it does not further the organization's primary mission.

Income from a bookstore operated by a tax-exempt organization qualifies as UBTI if the bookstore does not directly contribute to the organization's exempt purpose. For example, if the organization runs a bookstore that sells merchandise irrelevant to its charitable activities or is operated in a manner similar to a commercial business, the income generated can be considered unrelated to its exempt purpose, thereby becoming taxable. The key factor is that the bookstore operates in a trade or business manner independent of the organization's mission, fitting the definition of UBTI.

In contrast, profit from a charity event is typically related to the organization's charitable purpose, and income from a sponsored seminar often serves to further the organization's activities. Income from investments in stocks and bonds is generally considered passive and not associated with unrelated business activities, hence not classified as UBTI.