109: Nonprofit Basics: Unrelated Business Income Tax: Debt Financed Income - Part 3

Welcome to EO Radio Show - Your Nonprofit Legal Resource. I'm Cynthia Rowland, and episode 109 is the third in a series of technical episodes describing the basic principles of the tax on unrelated business income generated by organizations described in Internal Revenue Code Section 501(c)(3). That includes public charities and private foundations. Most listeners are probably aware that 501(c)(3) organizations are generally exempt from income tax, but this does not mean that all income generated by the organization is free of income tax. For most organizations, unrelated business income is defined as income from a trade or business regularly carried on that is not substantially related to the charitable, educational, or other purpose that is the basis for the charity's exemption.

In episode 107, I reviewed these defined terms.

In episode 108, I explored the modifications to unrelated business taxable income that provide exceptions to income items that would otherwise fall into these definitions that are taxable but instead are categorically excluded because, generally, they constitute passive income.

In this last episode in the series, I'll cover the exception to the exceptions for income that is debt-financed and thus generally taxable.

Show Notes: 

IRS Publication 598

IRS form 990-T

IRS Discussion of Qualified Sponsorship Payments

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