Related vs. Unrelated Business Expenses

Q: What is the difference between business activities that are taxable and those that are not?

A: While pursuing a cause, a nonprofit organization may accrue some profit. This profit is considered tax-exempt, as it is a result of business related activities that prove beneficial to the given cause. Any profit that may come from business activity not related to the mission of the organization may be subject to taxation. There are exceptions in which unrelated activities will not be taxed, such as tasks performed by volunteers, the sale of donated merchandise, and/or the rental of mailing lists.

However flexible this rule may be, nonprofit organizations are often cautioned to lessen their unrelated business activities, as not to provoke inquiries from the IRS about tax-exempt status. It is also suggested that you seek legal advice before pursuing business activities as means to cultivate your mission or increase annual income.

For more information, please consider the following sources:

Publication 557: http://www.irs.gov/publications/p557/index.html
Exempt Organizations (UBI) Tax Statistics: http://www.irs.gov/taxstats/charitablestats/article/0,,id=97210,00.html

Some 990 Resources

990 material

From AFP

http://www.afpnet.org/ResourceCenter/content.cfm?ItemNumber=2865

Some links from the IRS

http://www.irs.gov/charities/article/0,,id=214269,00.html

http://www.irs.gov/charities/article/0,,id=208553,00.html

http://www.irs.gov/charities/article/0,,id=201398,00.html

http://www.irs.gov/charities/article/0,,id=188585,00.html

http://www.irs.gov/charities/article/0,,id=166625,00.html

Some additional links

http://afprc7.blogspot.com/search?q=990+2008

http://canbootcamp.blogspot.com/2008/09/new-990-to-do-list.html

http://www.larsonallen.com/fig/Redesigned990.asp

http://www.landtrustalliance.org/policy/taxincentives/990s/990-instructions

The following is older material but may still be useful

An article on this blog titled The Elusive 990.

Some other web resources.
How to Read the IRS Form 990
& Find Out What it Means

How to Read IRS Form 990 from Fidelity


A variety of nonprofit financial links via SNPO

Assessing Nonprofit Financial Measures from Nonprofit Research Fund