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Http www hrblock com Index A Abandonment of home, Abandonment. Http www hrblock com Absence, temporary, Temporary absence. Http www hrblock com Abstract fees, Settlement fees or closing costs. Http www hrblock com Address, change of, Reminders Adjusted basis, Adjusted Basis, Adjusted Basis Definition of, Determining Basis Worksheet 1 to figure, Determining Basis, Worksheet 1. Http www hrblock com Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 1. Http www hrblock com Adjusted Basis of Home Sold—Illustrated Example 3 for Emily White, Worksheet 1 Instructions. Http www hrblock com Adjusted Basis of Home Sold Adoption Adjusted basis of home for credit claimed, Decreases to Basis Advertising fees, Selling expenses. Http www hrblock com Amount realized, Amount Realized Appraisal fees, Settlement fees or closing costs. Http www hrblock com Architect's fees, Construction. Http www hrblock com Armed forces Ownership and use tests, Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. Http www hrblock com Assistance (see Tax help) B Back interest, Settlement fees or closing costs. Http www hrblock com Basis Adjusted basis (see Adjusted basis) Determination of, Determining Basis, Adjusted Basis Other than cost, Basis Other Than Cost Building permit fees, Construction. Http www hrblock com Business use of home, Business Use or Rental of Home, Use test met for business part (with no business use in year of sale). Http www hrblock com C Casualties Amounts spent after to restore damaged property, Increases to Basis Deductible casualty losses, Decreases to Basis Disaster as cause of, Specific event safe harbors. Http www hrblock com Insurance payments for casualty losses, Decreases to Basis Change of address, Reminders Closing costs, Settlement fees or closing costs. Http www hrblock com Commissions, Selling expenses. Http www hrblock com , Settlement fees or closing costs. Http www hrblock com Community property Basis determination, Community property. Http www hrblock com Condemnation Gain exclusion, Home destroyed or condemned. Http www hrblock com Ownership and use test when previous home condemned, Previous home destroyed or condemned. Http www hrblock com Condominiums As main home, Main Home Basis determination, Condominium. Http www hrblock com Construction costs, Construction. Http www hrblock com Built by you, Built by you. Http www hrblock com Cooperative apartments As main home, Main Home Basis determination, Cooperative apartment. Http www hrblock com Ownership and use tests, Cooperative apartment. Http www hrblock com Cost as basis, Cost As Basis Credit reports Cost of obtaining, Settlement fees or closing costs. Http www hrblock com D Date of sale, Date of sale. Http www hrblock com Death Sale due to, Specific event safe harbors. Http www hrblock com Spouse's death before sale, ownership and use tests, Sale of main home by surviving spouse. Http www hrblock com Decreases to basis, Decreases to Basis Depreciation After May 6, 1997, Depreciation after May 6, 1997. Http www hrblock com Home used for business or rental purposes, Decreases to Basis Destroyed homes Gain exclusion, Home destroyed or condemned. Http www hrblock com Ownership and use test when previous home destroyed, Previous home destroyed or condemned. Http www hrblock com Disabilities, individuals with Ownership and use test, Exception for individuals with a disability. Http www hrblock com Disasters, Specific event safe harbors. Http www hrblock com Discharge of qualified principal residence indebtedness, Adjusted Basis Divorce Home received from spouse, Home received from spouse. Http www hrblock com Home transferred to spouse, Transfer to spouse. Http www hrblock com Ownership and use tests, Home transferred from spouse. Http www hrblock com Sale due to, Specific event safe harbors. Http www hrblock com Transfers after July 18, 1984, Transfers after July 18, 1984. Http www hrblock com Transfers before July 19, 1984, Transfers before July 19, 1984. Http www hrblock com Use of home after divorce, Use of home after divorce. Http www hrblock com Doctor's recommendation for sale, Doctor's recommendation safe harbor. Http www hrblock com E Easements, Decreases to Basis Employee of the intelligence community, Employee of the intelligence community. Http www hrblock com Employment Change in place of employment, Change in Place of Employment Payment by employer, when job transfer involved, Payment by employer. Http www hrblock com Energy Conservation subsidies, Decreases to Basis Credit, Decreases to Basis Exclusion of gain, Excluding the Gain, Nonqualified Use Reduced maximum exclusion, Reduced Maximum Exclusion Expatriates, Expatriates. Http www hrblock com F Federal mortgage subsidies Recapture of, Recapturing (Paying Back) a Federal Mortgage Subsidy Figuring gain or loss, Figuring Gain or Loss, More information. Http www hrblock com Fire insurance premiums, Settlement fees or closing costs. Http www hrblock com Foreclosure, Foreclosure or repossession. Http www hrblock com Foreign Service, Foreign Service member. Http www hrblock com Ownership and use tests, Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. Http www hrblock com Form 1040 Reporting sale of home, Reporting the Sale Seller-financed mortgages, Seller-financed mortgage. Http www hrblock com Form 1040, Schedule A Real estate taxes, Real estate taxes. Http www hrblock com Form 1040, Schedule D Reporting sale of home, Reporting the Sale Form 1099-S Proceeds from real estate transactions, Date of sale. Http www hrblock com , Form 1099-S. Http www hrblock com , Form 1099-S. Http www hrblock com Form 2119 Sale of home, Adjusted Basis Form 6252 Installment sale income, Installment sale. Http www hrblock com Form 8828 Recapture tax, How to figure and report the recapture. Http www hrblock com Form 8960 Net Investment Income Tax, Net Investment Income Tax (NIIT). Http www hrblock com NIIT, Net Investment Income Tax (NIIT). Http www hrblock com Form 982 Discharge of indebtedness, Adjusted Basis Free tax services, Free help with your tax return. Http www hrblock com Future developments, Future Developments G Gain or loss Basis determination, Determining Basis, Adjusted Basis Exclusion of gain, Excluding the Gain Exclusion of gain, nonqualified use, Nonqualified Use Gain on sale, Gain on sale. Http www hrblock com Loss on sale, Loss on sale. Http www hrblock com Postponed from sale of previous home before May 7, 1997, Decreases to Basis Worksheet 2 to figure, Worksheet 2. Http www hrblock com Taxable Gain on Sale of Home—Completed Example 1 for Amy, Worksheet 1. Http www hrblock com Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 2. Http www hrblock com Taxable Gain on Sale of Home—Illustrated Example 2 for Peter and Betty Clark, Worksheet 2. Http www hrblock com Taxable Gain on Sale of Home—Illustrated Example 3 for Emily White, Worksheet 2. Http www hrblock com Taxable Gain on Sale of Home Gifts Home received as, Home received as gift. Http www hrblock com H Health Sale of home due to, Health Help (see Tax help) Homebuyer credit Recapture, Recapture of the post-2008 first-time homebuyer credit. Http www hrblock com Houseboats As main home, Main Home I Important reminders Change of address, Reminders Home sold with undeducted points, Reminders Improvements Adjusted basis determination, Improvements. Http www hrblock com Charges for, Settlement fees or closing costs. Http www hrblock com Receipts and other records, Adjusted Basis Useful life of more than 1 year, Increases to Basis Increases to basis, Increases to Basis Individual taxpayer identification numbers (ITINs), Individual taxpayer identification number (ITIN). Http www hrblock com Inheritance Home received as, Home acquired from a decedent who died before or after 2010. Http www hrblock com Installment sales, Installment sale. Http www hrblock com Involuntary conversion, Specific event safe harbors. Http www hrblock com ITINs (Individual taxpayer identification numbers), Individual taxpayer identification number (ITIN). Http www hrblock com J Joint owners not married, Joint owners not married. Http www hrblock com Joint returns, Jointly owned home. Http www hrblock com Ownership and use tests, Married Persons L Land Sale of land on which home located, Land. Http www hrblock com Sale of vacant land, Vacant land. Http www hrblock com Legal fees, Selling expenses. Http www hrblock com , Settlement fees or closing costs. Http www hrblock com , Construction. Http www hrblock com Legal separation Sale due to, Specific event safe harbors. Http www hrblock com Like-kind exchange, Sale of home acquired in a like-kind exchange. Http www hrblock com Living expenses, Reasonable basic living expenses. Http www hrblock com Loan assumption fees, Settlement fees or closing costs. Http www hrblock com Loan placement fees, Selling expenses. Http www hrblock com Loss (see Gain or loss) M Main home Defined, Main Home Factors used to determine, Factors used to determine main home. Http www hrblock com Property used partly as, Property used partly as your main home. Http www hrblock com , Property Used Partly for Business or Rental Married taxpayers (see Joint returns) Maximum exclusion, Maximum Exclusion Reduced, Reduced Maximum Exclusion Military (see Armed forces) Missing children, photographs of, Reminders Mobile homes As main home, Main Home More than one home, More than one home. Http www hrblock com Mortgage fees, Settlement fees or closing costs. Http www hrblock com Mortgage insurance premiums, Settlement fees or closing costs. Http www hrblock com Mortgage subsidies Recapturing (paying back) federal mortgage subsidy, Recapturing (Paying Back) a Federal Mortgage Subsidy Mortgages, seller-financed, Seller-financed mortgage. Http www hrblock com Moving expense, Settlement fees or closing costs. Http www hrblock com Multiple births Sale due to, Specific event safe harbors. Http www hrblock com N Nonqualified use, Nonqualified Use Nonresident aliens Spouse as, transfer of home to, Exception. Http www hrblock com O Option to buy home, Option to buy. Http www hrblock com Ownership and use tests, Ownership and Use Tests, Ownership and use tests met at different times. Http www hrblock com P Partly used for business, Property Used Partly for Business or Rental Personal property Selling price of home not to include, Personal property. Http www hrblock com Points, Selling expenses. Http www hrblock com Home sold with undeducted points, Reminders Seller-paid, Seller-paid points. Http www hrblock com Publications (see Tax help) R Real estate taxes, Settlement fees or closing costs. Http www hrblock com , Real estate taxes. Http www hrblock com Deducting in year of sale, Deducting Taxes in the Year of Sale Recapture of federal mortgage subsidy, Recapturing (Paying Back) a Federal Mortgage Subsidy Recapture of first-time homebuyer credit, Recapture of First-Time Homebuyer Credit Recording fees, Settlement fees or closing costs. Http www hrblock com Recordkeeping, Adjusted Basis Reduced maximum exclusion, Reduced Maximum Exclusion Worksheet 3, Worksheet 3. Http www hrblock com Reduced Maximum Exclusion Refinancing, Settlement fees or closing costs. Http www hrblock com Relatives Sale of home to, Exception for sales to related persons. Http www hrblock com Remainder interest Sale of, Sale of remainder interest. Http www hrblock com Remodeling, Improvements. Http www hrblock com , Exception. Http www hrblock com (see also Improvements) Rental of home, Business Use or Rental of Home, Use test met for business part (with no business use in year of sale). Http www hrblock com Before closing, by buyer, Settlement fees or closing costs. Http www hrblock com Partial use, Property Used Partly for Business or Rental Repairs, Settlement fees or closing costs. Http www hrblock com , Improvements. Http www hrblock com , Repairs. Http www hrblock com (see also Improvements) Reporting the sale, Reporting the Sale, Worksheet 2. Http www hrblock com Taxable Gain on Sale of Home—Illustrated Example 3 for Emily White Repossession, Foreclosure or repossession. Http www hrblock com Right-of-ways, Decreases to Basis S Safe harbors Distance safe harbor, Distance safe harbor. Http www hrblock com Doctor's recommendation for sale, Doctor's recommendation safe harbor. Http www hrblock com Unforeseeable events, Specific event safe harbors. Http www hrblock com Sales commissions, Selling expenses. Http www hrblock com , Settlement fees or closing costs. Http www hrblock com Sales to related persons, Exception for sales to related persons. Http www hrblock com Self-employed persons Change in status causing inability to pay basic expenses, Specific event safe harbors. Http www hrblock com Seller-financed mortgages, Seller-financed mortgage. Http www hrblock com Seller-paid points, Seller-paid points. Http www hrblock com Selling expenses, Selling expenses. Http www hrblock com Selling price, Selling Price Separate returns, Separate returns. Http www hrblock com Settlement fees, Settlement fees or closing costs. Http www hrblock com Spouse Death of (see Surviving spouse) Divorce, transfers subsequent to (see Divorce) Survey fees, Settlement fees or closing costs. Http www hrblock com Surviving spouse Basis determination, Surviving spouse. Http www hrblock com Ownership and use tests, Sale of main home by surviving spouse. Http www hrblock com T Tax help, How To Get Tax Help Temporary absence, Temporary absence. Http www hrblock com Temporary housing, Temporary housing. Http www hrblock com Title insurance, Settlement fees or closing costs. Http www hrblock com Title search fees, Settlement fees or closing costs. Http www hrblock com Trading homes, Trading (exchanging) homes. Http www hrblock com , Home received as trade. Http www hrblock com Transfer taxes, Settlement fees or closing costs. Http www hrblock com , Transfer taxes. Http www hrblock com Transfer to spouse, Transfer to spouse. Http www hrblock com After July 18, 1984, Transfers after July 18, 1984. Http www hrblock com Before July 19, 1984, Transfers before July 19, 1984. Http www hrblock com TTY/TDD information, How To Get Tax Help U Unemployment, Specific event safe harbors. Http www hrblock com Unforeseen circumstances, Unforeseen Circumstances Uniformed services (see Armed forces) Use tests, Ownership and Use Tests, Ownership and use tests met at different times. Http www hrblock com Utilities Charges for installing, Settlement fees or closing costs. Http www hrblock com Charges related to occupancy of house before closing, Settlement fees or closing costs. Http www hrblock com Energy conservation subsidy, Decreases to Basis Meter and connection charges for construction, Construction. Http www hrblock com V Vacant land Sale of, Vacant land. Http www hrblock com W Worksheets, Worksheets. Http www hrblock com Adjusted basis (Worksheet 1), Determining Basis, Worksheet 1. Http www hrblock com Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 1. Http www hrblock com Adjusted Basis of Home Sold—Illustrated Example 3 for Emily White, Worksheet 1 Instructions. Http www hrblock com Adjusted Basis of Home Sold Gain (or loss), exclusion, and taxable gain (Worksheet 2), Worksheet 2. Http www hrblock com Taxable Gain on Sale of Home—Completed Example 1 for Amy, Worksheet 1. Http www hrblock com Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 2. Http www hrblock com Taxable Gain on Sale of Home—Illustrated Example 2 for Peter and Betty Clark, Worksheet 2. Http www hrblock com Taxable Gain on Sale of Home—Illustrated Example 3 for Emily White, Worksheet 2. Http www hrblock com Taxable Gain on Sale of Home Recordkeeping and, Adjusted Basis Reduced maximum exclusion (Worksheet 3), Worksheet 3. Http www hrblock com Reduced Maximum Exclusion Prev  Up     Home   More Online Publications
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Http www hrblock com 3. Http www hrblock com   Unrelated Trade or Business Table of Contents Selling of products of exempt functions. Http www hrblock com Dual use of assets or facilities. Http www hrblock com Exploitation of exempt functions. Http www hrblock com ExamplesExceptions. Http www hrblock com Excluded Trade or Business ActivitiesQualified sponsorship payment. Http www hrblock com Advertising. Http www hrblock com Exception for contingent payments. Http www hrblock com Exception for periodicals. Http www hrblock com Exception for conventions and trade shows. Http www hrblock com Legal definition. Http www hrblock com Legal where played. Http www hrblock com No for-profit games where played. Http www hrblock com Unrelated business income. Http www hrblock com   Unrelated business income is the income from a trade or business regularly conducted by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity. Http www hrblock com   Certain trade or business activities are not treated as an unrelated trade or business. Http www hrblock com See Excluded Trade or Business Activities, later. Http www hrblock com Trade or business. Http www hrblock com   The term “trade or business” generally includes any activity conducted for the production of income from selling goods or performing services. Http www hrblock com An activity does not lose its identity as a trade or business merely because it is conducted within a larger group of similar activities that may or may not be related to the exempt purposes of the organization. Http www hrblock com   For example, the regular sale of pharmaceutical supplies to the general public by a hospital pharmacy does not lose its identity as a trade or business, even though the pharmacy also furnishes supplies to the hospital and patients of the hospital in accordance with its exempt purpose. Http www hrblock com Similarly, soliciting, selling, and publishing commercial advertising is a trade or business even though the advertising is published in an exempt organization's periodical that contains editorial matter related to the organization's exempt purpose. Http www hrblock com Regularly conducted. Http www hrblock com   Business activities of an exempt organization ordinarily are considered regularly conducted if they show a frequency and continuity, and are pursued in a manner similar to comparable commercial activities of nonexempt organizations. Http www hrblock com   For example, a hospital auxiliary's operation of a sandwich stand for 2 weeks at a state fair would not be the regular conduct of a trade or business. Http www hrblock com The stand would not compete with similar facilities that a nonexempt organization would ordinarily operate year-round. Http www hrblock com However, operating a commercial parking lot every Saturday, year-round, would be the regular conduct of a trade or business. Http www hrblock com Not substantially related. Http www hrblock com    A business activity is not substantially related to an organization's exempt purpose if it does not contribute importantly to accomplishing that purpose (other than through the production of funds). Http www hrblock com Whether an activity contributes importantly depends in each case on the facts involved. Http www hrblock com   In determining whether activities contribute importantly to the accomplishment of an exempt purpose, the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt function that they intend to serve. Http www hrblock com For example, to the extent an activity is conducted on a scale larger than is reasonably necessary to perform an exempt purpose, it does not contribute importantly to the accomplishment of the exempt purpose. Http www hrblock com The part of the activity that is more than needed to accomplish the exempt purpose is an unrelated trade or business. Http www hrblock com   Also in determining whether activities contribute importantly to the accomplishment of an exempt purpose, the following principles apply. Http www hrblock com Selling of products of exempt functions. Http www hrblock com   Ordinarily, selling products that result from the performance of exempt functions is not an unrelated trade or business if the product is sold in substantially the same state it is in when the exempt functions are completed. Http www hrblock com Thus, for an exempt organization engaged in rehabilitating handicapped persons (its exempt function), selling articles made by these persons as part of their rehabilitation training is not an unrelated trade or business. Http www hrblock com   However, if a completed product resulting from an exempt function is used or exploited in further business activity beyond what is reasonably appropriate or necessary to dispose of it as is, the activity is an unrelated trade or business. Http www hrblock com For example, if an exempt organization maintains an experimental dairy herd for scientific purposes, the sale of milk and cream produced in the ordinary course of operation of the project is not an unrelated trade or business. Http www hrblock com But if the organization uses the milk and cream in the further manufacture of food items such as ice cream, pastries, etc. Http www hrblock com , the sale of these products is an unrelated trade or business unless the manufacturing activities themselves contribute importantly to the accomplishment of an exempt purpose of the organization. Http www hrblock com Dual use of assets or facilities. Http www hrblock com   If an asset or facility necessary to the conduct of exempt functions is also used in commercial activities, its use for exempt functions does not, by itself, make the commercial activities a related trade or business. Http www hrblock com The test, as discussed earlier, is whether the activities contribute importantly to the accomplishment of exempt purposes. Http www hrblock com   For example, a museum has a theater auditorium designed for showing educational films in connection with its program of public education in the arts and sciences. Http www hrblock com The theater is a principal feature of the museum and operates continuously while the museum is open to the public. Http www hrblock com If the organization also operates the theater as a motion picture theater for the public when the museum is closed, the activity is an unrelated trade or business. Http www hrblock com   For information on allocating expenses for the dual use of assets or facilities, see Deductions in chapter 4. Http www hrblock com Exploitation of exempt functions. Http www hrblock com   Exempt activities sometimes create goodwill or other intangibles that can be exploited in a commercial way. Http www hrblock com When an organization exploits such an intangible in commercial activities, the fact that the income depends in part upon an exempt function of the organization does not make the commercial activities a related trade or business. Http www hrblock com Unless the commercial exploitation contributes importantly to the accomplishment of the exempt purpose, the commercial activities are an unrelated trade or business. Http www hrblock com   For the treatment of expenses attributable to the exploitation of exempt activities, see Deductions in chapter 4. Http www hrblock com Examples The following are examples of activities that were determined to be (or not to be) unrelated trades or businesses using the definitions and principles just discussed. Http www hrblock com Sales commissions. Http www hrblock com   An agricultural organization, whose exempt purposes are to promote better conditions for cattle breeders and to improve the breed generally, engages in an unrelated trade or business when it regularly sells cattle for its members on a commission basis. Http www hrblock com Artists' facilities. Http www hrblock com   An organization whose exempt purpose is to stimulate and foster public interest in the fine arts by promoting art exhibits, sponsoring cultural events, and furnishing information about fine arts leases studio apartments to artist tenants and operates a dining hall primarily for these tenants. Http www hrblock com These two activities do not contribute importantly to accomplishing the organization's exempt purpose. Http www hrblock com Therefore, they are unrelated trades or businesses. Http www hrblock com Membership list sales. Http www hrblock com   An exempt educational organization regularly sells membership mailing lists to business firms. Http www hrblock com This activity does not contribute importantly to the accomplishment of the organization's exempt purpose and therefore is an unrelated trade or business. Http www hrblock com Also see Exchange or rental of member lists under Excluded Trade or Business Activities, later. Http www hrblock com Hospital facilities. Http www hrblock com   An exempt hospital leases its adjacent office building and furnishes certain office services to a hospital-based medical group for a fee. Http www hrblock com The group provides all diagnostic and therapeutic procedures to the hospital's patients and operates the hospital's emergency room on a 24-hour basis. Http www hrblock com The leasing activity is substantially related to the hospital's exempt purpose and is not an unrelated trade or business. Http www hrblock com   The hospital also operates a gift shop patronized by patients, visitors making purchases for patients, and employees; a cafeteria and coffee shop primarily for employees and medical staff; and a parking lot for patients and visitors only. Http www hrblock com These activities are also substantially related to the hospital's exempt purpose and do not constitute unrelated trades or businesses. Http www hrblock com Book publishing. Http www hrblock com   An exempt organization engages primarily in activities that further its exempt purposes. Http www hrblock com It also owns the publication rights to a book that does not relate to any of its exempt purposes. Http www hrblock com The organization exploits the book in a commercial manner by arranging for printing, distribution, publicity, and advertising in connection with the sale of the book. Http www hrblock com These activities constitute a trade or business regularly conducted. Http www hrblock com Because exploiting the book is unrelated to the organization's exempt purposes (except for the use of the book's profits), the income is unrelated business income. Http www hrblock com   However, if the organization transfers publication rights to a commercial publisher in return for royalties, the royalty income received will not be unrelated business income. Http www hrblock com See Royalties under Exclusions in chapter 4. Http www hrblock com School handicraft shop. Http www hrblock com   An exempt vocational school operates a handicraft shop that sells articles made by students in their regular courses of instruction. Http www hrblock com The students are paid a percentage of the sales price. Http www hrblock com In addition, the shop sells products made by local residents who make articles at home according to the shop's specifications. Http www hrblock com The shop manager periodically inspects the articles during their manufacture to ensure that they meet desired standards of style and quality. Http www hrblock com Although many local participants are former students of the school, any qualified person may participate in the program. Http www hrblock com The sale of articles made by students does not constitute an unrelated trade or business, but the sale of products made by local residents is an unrelated trade or business and is subject to unrelated business income tax. Http www hrblock com School facilities. Http www hrblock com   An exempt school has tennis courts and dressing rooms that it uses during the regular school year in its educational program. Http www hrblock com During the summer, the school operates a tennis club open to the general public. Http www hrblock com Employees of the school run the club, including collecting membership fees and scheduling court time. Http www hrblock com   Another exempt school leases the same type of facilities to an unrelated individual who runs a tennis club for the summer. Http www hrblock com The lease is for a fixed fee that does not depend on the income or profits derived from the leased property. Http www hrblock com   In both situations, the exempt purpose is the advancement of education. Http www hrblock com Furnishing tennis facilities in the manner described does not further that exempt purpose. Http www hrblock com These activities are unrelated trades or businesses. Http www hrblock com However, in the second situation the income derived from the leasing of the property is excluded from unrelated business taxable income as rent from real property. Http www hrblock com See Rents under Exclusions in chapter 4. Http www hrblock com Services provided with lease. Http www hrblock com   An exempt university leases its football stadium during several months of the year to a professional football team for a fixed fee. Http www hrblock com Under the lease agreement, the university furnishes heat, light, and water and is responsible for all ground maintenance. Http www hrblock com It also provides dressing room, linen, and stadium security services for the professional team. Http www hrblock com   Leasing of the stadium is an unrelated trade or business. Http www hrblock com In addition, the substantial services furnished for the convenience of the lessee go beyond those usually provided with the rental of space for occupancy only. Http www hrblock com Therefore, the income from this lease is rent from real property and unrelated business taxable income. Http www hrblock com Broadcasting rights. Http www hrblock com   An exempt collegiate athletic conference conducts an annual competitive athletic game between its conference champion and another collegiate team. Http www hrblock com Income is derived from admission charges and the sale of exclusive broadcasting rights to a national radio and television network. Http www hrblock com An athletic program is considered an integral part of the educational process of a university. Http www hrblock com   The educational purposes served by intercollegiate athletics are identical whether conducted directly by individual universities or by their regional athletic conference. Http www hrblock com Also, the educational purposes served by exhibiting a game before an audience that is physically present and exhibiting the game on television or radio before a much larger audience are substantially similar. Http www hrblock com Therefore, the sale of the broadcasting rights contributes importantly to the accomplishment of the organization's exempt purpose and is not an unrelated trade or business. Http www hrblock com   In a similar situation, an exempt organization was created as a national governing body for amateur athletes to foster interest in amateur sports and to encourage widespread public participation. Http www hrblock com The organization receives income each year from the sale of exclusive broadcasting rights to an independent producer, who contracts with a commercial network to broadcast many of the athletic events sponsored, supervised, and regulated by the organization. Http www hrblock com   The broadcasting of these events promotes the various amateur sports, fosters widespread public interest in the benefits of the organization's nationwide amateur program, and encourages public participation. Http www hrblock com The sale of the rights and the broadcasting of the events contribute importantly to the organization's exempt purpose. Http www hrblock com Therefore, the sale of the exclusive broadcasting rights is not an unrelated trade or business. Http www hrblock com Yearbook advertising. Http www hrblock com   An exempt organization receives income from the sale of advertising in its annual yearbook. Http www hrblock com The organization hires an independent commercial firm, under a contract covering a full calendar year, to conduct an intensive advertising solicitation campaign in the organization's name. Http www hrblock com This firm is paid a percentage of the gross advertising receipts for selling the advertising, collecting from advertisers, and printing the yearbook. Http www hrblock com This advertising activity is an unrelated trade or business. Http www hrblock com Pet boarding and grooming services. Http www hrblock com   An exempt organization, organized and operated for the prevention of cruelty to animals, receives unrelated business income from providing pet boarding and grooming services for the general public. Http www hrblock com These activities do not contribute importantly to its purpose of preventing cruelty to animals. Http www hrblock com Museum eating facilities. Http www hrblock com   An exempt art museum operates a dining room, a cafeteria, and a snack bar for use by the museum staff, employees, and visitors. Http www hrblock com Eating facilities in the museum help to attract visitors and allow them to spend more time viewing the museum's exhibits without having to seek outside restaurants at mealtime. Http www hrblock com The eating facilities also allow the museum staff and employees to remain in the museum throughout the day. Http www hrblock com Thus, the museum's operation of the eating facilities contributes importantly to the accomplishment of its exempt purposes and is not unrelated trade or business. Http www hrblock com Halfway house workshop. Http www hrblock com   A halfway house organized to provide room, board, therapy, and counseling for persons discharged from alcoholic treatment centers also operates a furniture shop to provide full-time employment for its residents. Http www hrblock com The profits are applied to the operating costs of the halfway house. Http www hrblock com The income from this venture is not unrelated trade or business income because the furniture shop contributes importantly to the organization's purpose of aiding its residents' transition from treatment to a normal and productive life. Http www hrblock com Travel tour programs. Http www hrblock com   Travel tour activities that are a trade or business are an unrelated trade or business if the activities are not substantially related to the purpose for which tax exemption was granted to the organization. Http www hrblock com Example 1. Http www hrblock com A tax-exempt university alumni association provides a travel tour program for its members and their families. Http www hrblock com The organization works with various travel agencies and schedules approximately ten tours a year to various places around the world. Http www hrblock com It mails out promotional material and accepts reservations for fees paid by the travel agencies on a per-person basis. Http www hrblock com The organization provides an employee for each tour as a tour leader. Http www hrblock com There is no formal educational program conducted with these tours, and they do not differ from regular commercially operated tours. Http www hrblock com By providing travel tours to its members, the organization is engaging in a regularly conducted trade or business. Http www hrblock com Even if the tours it offers support the university, financially and otherwise, and encourage alumni to do the same, they do not contribute importantly to the organization's exempt purpose of promoting education. Http www hrblock com Therefore, the sale of the travel tours is an unrelated trade or business. Http www hrblock com Example 2. Http www hrblock com A tax-exempt organization formed for the purpose of educating individuals about the geography and the culture of the United States provides study tours to national parks and other locations within the United States. Http www hrblock com These tours are conducted by teachers and others certified by the state board of education. Http www hrblock com The tours are primarily designed for students enrolled in degree programs at state educational institutions but are open to all who agree to participate in the required study program associated with the tour taken. Http www hrblock com A tour's study program consists of instruction on subjects related to the location being visited on the tour. Http www hrblock com Each tour group brings along a library of material related to the subjects being studied on the tour. Http www hrblock com During the tour, 5 or 6 hours per day are devoted to organized study, preparation of reports, lectures, instruction, and recitation by the students. Http www hrblock com Examinations are given at the end of each tour. Http www hrblock com The state board of education awards academic credit for tour participation. Http www hrblock com Because these tours are substantially related to the organization's exempt purpose, they are not an unrelated trade or business. Http www hrblock com Insurance programs. Http www hrblock com   An organization that acts as a group insurance policyholder for its members and collects a fee for performing administrative services is normally carrying on an unrelated trade or business. Http www hrblock com Exceptions. Http www hrblock com   Organizations whose exempt activities may include the provision of insurance benefits, such as fraternal beneficiary societies, voluntary employees beneficiary associations, and labor organizations, are generally exceptions to this rule. Http www hrblock com Magazine publishing. Http www hrblock com   An association of credit unions with tax-exempt status as a business league publishes a consumer-oriented magazine four times a year and makes it available to member credit unions for purchase. Http www hrblock com   By selling a magazine to its members as a promotional device, the organization furnishes its members with a regular commercial service they can use in their own operations. Http www hrblock com This service does not promote the improvement of business conditions of one or more lines of business, which is the exempt purpose of a business league. Http www hrblock com   Since the activity does not contribute importantly to the organization's exempt function, it is an unrelated trade or business. Http www hrblock com Directory of members. Http www hrblock com   A business league publishes an annual directory that contains a list of all its members, their addresses, and their area of expertise. Http www hrblock com Each member has the same amount of space in the directory, and its format does not emphasize the relative importance or reputation of any member. Http www hrblock com The directory contains no commercial advertisement and is sold only to the organization's members. Http www hrblock com   The directory facilitates communication among the members and encourages the exchange of ideas and expertise. Http www hrblock com Because the directory lists the members in a similar noncommercial format without advertising and is not distributed to the public, its sale does not confer private commercial benefits on the members. Http www hrblock com The sale of the directory does contribute importantly to the organization's exempt purpose and is not an unrelated trade or business. Http www hrblock com This directory differs from the publication discussed next because of its noncommercial characteristics. Http www hrblock com Sales of advertising space. Http www hrblock com   A national association of law enforcement officials publishes a monthly journal that contains articles and other editorial material of professional interest to its members. Http www hrblock com The journal is distributed without charge, mainly to the organization's members. Http www hrblock com   The organization sells advertising space in the journal either for conventional advertising or to merely identify the purchaser without a commercial message. Http www hrblock com Some of the noncommercial advertising identifies the purchaser in a separate space, and some consists of listings of 60 or more purchasers per page. Http www hrblock com A business firm identified in a separate space is further identified in an Index of Advertisers. Http www hrblock com   The organization solicits advertising by personal contacts. Http www hrblock com Advertising from large firms is solicited by contacting their chief executive officer or community relations officer rather than their advertising manager. Http www hrblock com The organization also solicits advertising in form letters appealing for corporate and personal contributions. Http www hrblock com   An exempt organization's sale of advertising placed for the purchaser's commercial benefit is a commercial activity. Http www hrblock com Goodwill derived by the purchaser from being identified as a patron of the organization is usually considered a form of commercial benefit. Http www hrblock com Therefore, advertising in an exempt organization's publication is generally presumed to be placed for the purchaser's commercial benefit, even if it has no commercial message. Http www hrblock com However, this presumption is not conclusive if the purchaser's patronage would be difficult to justify commercially in view of the facts and circumstances. Http www hrblock com In that case, other factors should also be considered in determining whether a commercial benefit can be expected. Http www hrblock com Those other factors include: The normal manner in which the publication is circulated; The territorial scope of the circulation; The extent to which its readers, promoters, or the like could reasonably be expected to further, either directly or indirectly, the commercial interest of the advertisers; The eligibility of the publishing organization to receive tax-deductible contributions; and The commercial or noncommercial methods used to solicit the advertisers. Http www hrblock com   In this situation, the purchaser of a separate advertising space without a commercial message can nevertheless expect a commercial benefit from the goodwill derived from being identified in that manner as a patron of the organization. Http www hrblock com However, the purchaser of a listing cannot expect more than an inconsequential benefit. Http www hrblock com Therefore, the sale of separate spaces, but not the listings, is an unrelated trade or business. Http www hrblock com Publishing legal notices. Http www hrblock com   A bar association publishes a legal journal containing opinions of the county court, articles of professional interest to lawyers, advertisements for products and services used by the legal profession, and legal notices. Http www hrblock com The legal notices are published to satisfy state laws requiring publication of notices in connection with legal proceedings, such as the administration of estates and actions to quiet title to real property. Http www hrblock com The state designated the bar association's journal as the place to publish the required notices. Http www hrblock com   The publication of ordinary commercial advertising does not advance the exempt purposes of the association even when published in a periodical that contains material related to exempt purposes. Http www hrblock com Although the advertising is directed specifically to members of the legal profession, it is still commercial in nature and does not contribute importantly to the exempt purposes of the association. Http www hrblock com Therefore, the advertising income is unrelated trade or business income. Http www hrblock com   On the other hand, the publication of legal notices is distinguishable from ordinary commercial advertising in that its purpose is to inform the general public of significant legal events rather than to stimulate demand for the products or services of an advertiser. Http www hrblock com This promotes the common interests of the legal profession and contributes importantly to the association's exempt purposes. Http www hrblock com Therefore, the publishing of legal notices does not constitute an unrelated trade or business. Http www hrblock com Museum greeting card sales. Http www hrblock com    An art museum that exhibits modern art sells greeting cards that display printed reproductions of selected works from other art collections. Http www hrblock com Each card is imprinted with the name of the artist, the title or subject matter of the work, the date or period of its creation, if known, and the museum's name. Http www hrblock com The cards contain appropriate greetings and are personalized on request. Http www hrblock com   The organization sells the cards in the shop it operates in the museum and sells them at quantity discounts to retail stores. Http www hrblock com It also sells them by mail order through a catalog that is advertised in magazines and other publications throughout the year. Http www hrblock com As a result, a large number of cards are sold at a significant profit. Http www hrblock com   The museum is exempt as an educational organization on the basis of its ownership, maintenance, and exhibition for public viewing of works of art. Http www hrblock com The sale of greeting cards with printed reproductions of artworks contributes importantly to the achievement of the museum's exempt educational purposes by enhancing public awareness, interest, and appreciation of art. Http www hrblock com The cards may encourage more people to visit the museum itself to share in its educational programs. Http www hrblock com The fact that the cards are promoted and sold in a commercial manner at a profit and in competition with commercial greeting card publishers does not alter the fact that the activity is related to the museum's exempt purpose. Http www hrblock com Therefore, these sales activities are not an unrelated trade or business. Http www hrblock com Museum shop. Http www hrblock com   An art museum maintained and operated for the exhibition of American folk art operates a shop in the museum that sells: Reproductions of works in the museum's own collection and reproductions of artistic works from the collections of other art museums (prints suitable for framing, postcards, greeting cards, and slides); Metal, wood, and ceramic copies of American folk art objects from its own collection and similar copies of art objects from other collections of artworks; Instructional literature and scientific books and souvenir items concerning the history and development of art and, in particular, of American folk art; and Scientific books and souvenir items of the city in which the museum is located. Http www hrblock com   The shop also rents originals or reproductions of paintings contained in its collection. Http www hrblock com All of its reproductions are imprinted with the name of the artist, the title or subject matter of the work from which it is reproduced, and the museum's name. Http www hrblock com   Each line of merchandise must be considered separately to determine if sales are related to the exempt purpose. Http www hrblock com   The sale and rental of reproductions and copies of works from the museum's own collection and reproductions of artistic works not owned by the museum contribute importantly to the achievement of the museum's exempt educational purpose by making works of art familiar to a broader segment of the public, thereby enhancing the public's understanding and appreciation of art. Http www hrblock com The same is true for the sale of literature relating to art. Http www hrblock com Therefore, these sales activities are not an unrelated trade or business. Http www hrblock com   On the other hand, the sale of scientific books and souvenir items of the city where the museum is located has no causal relationship to art or to artistic endeavor and, therefore, does not contribute importantly to the accomplishment of the museum's exempt educational purposes. Http www hrblock com The fact that selling some of these items could, under different circumstances, be held related to the exempt educational purpose of some other exempt educational organization does not change this conclusion. Http www hrblock com Additionally, the sale of these items does not lose its identity as a trade or business merely because the museum also sells articles which do contribute importantly to the accomplishment of its exempt function. Http www hrblock com Therefore, these sales are an unrelated trade or business. Http www hrblock com Business league's parking and bus services. Http www hrblock com   A business league, whose purpose is to retain and stimulate trade in a downtown area that has inadequate parking facilities, operates a fringe parking lot and shuttle bus service. Http www hrblock com It also operates, as an insubstantial part of its activities, a park and shop plan. Http www hrblock com   The fringe parking lot and shuttle bus service operate in a manner that does not favor any individual or group of downtown merchants. Http www hrblock com The merchants cannot offer free or discount parking or bus fares to their customers. Http www hrblock com   The park and shop plan allows customers of particular merchants to park free at certain parking lots in the area. Http www hrblock com Merchants participating in this plan buy parking stamps, which they distribute to their customers to use to pay for parking. Http www hrblock com   Operating the fringe parking lot and shuttle bus service provides easy and convenient access to the downtown area and, therefore, stimulates and improves business conditions in the downtown area generally. Http www hrblock com That activity contributes importantly to the organization's accomplishing its exempt purpose and is not an unrelated trade or business. Http www hrblock com   The park and shop plan encourages customers to use a limited number of participating member merchants in order to obtain free parking. Http www hrblock com This provides a particular service to individual members of the organization and does not further its exempt purpose. Http www hrblock com Therefore, operating the park and shop plan is an unrelated trade or business. Http www hrblock com Youth residence. Http www hrblock com   An exempt organization, whose purpose is to provide for the welfare of young people, rents rooms primarily to people under age 25. Http www hrblock com The residence units are operated on, and as a part of, the premises in which the organization carries on the social, recreational, and guidance programs for which it was recognized as exempt. Http www hrblock com The facilities are under the management and supervision of trained career professionals who provide residents with personal counseling, physical education programs, and group recreational activities. Http www hrblock com The rentals are not an unrelated trade or business because renting the rooms is substantially related to the organization's exempt purpose. Http www hrblock com Health club program. Http www hrblock com   An exempt charitable organization's purpose is to provide for the welfare of young people. Http www hrblock com The organization conducts charitable activities and maintains facilities that will contribute to the physical, social, mental, and spiritual health of young people at minimum or no cost to them. Http www hrblock com Nominal annual dues are charged for membership in the organization and use of the facilities. Http www hrblock com   In addition, the organization organized a health club program that its members could join for an annual fee in addition to the annual dues. Http www hrblock com The annual fee is comparable to fees charged by similar local commercial health clubs and is sufficiently high to restrict participation in the program to a limited number of members of the community. Http www hrblock com   The health club program is in addition to the general physical fitness program of the organization. Http www hrblock com Operating this program does not contribute importantly to the organization's accomplishing its exempt purpose and, therefore, is an unrelated trade or business. Http www hrblock com Miniature golf course. Http www hrblock com   An exempt youth welfare organization operates a miniature golf course that is open to the general public. Http www hrblock com The course, which is managed by salaried employees, is substantially similar to commercial courses. Http www hrblock com The admission fees charged are comparable to fees of commercial facilities and are designed to return a profit. Http www hrblock com   The operation of the miniature golf course in a commercial manner does not contribute importantly to the accomplishment of the organization's exempt purpose and, therefore, is an unrelated trade or business. Http www hrblock com Sales of hearing aids. Http www hrblock com   A tax-exempt hospital, whose primary activity is rehabilitation, sells hearing aids to patients. Http www hrblock com This activity is an essential part of the hospital's program to test and evaluate patients with hearing deficiencies and contributes importantly to its exempt purpose. Http www hrblock com It is not an unrelated trade or business. Http www hrblock com Nonpatient laboratory testing. Http www hrblock com   Nonpatient laboratory testing performed by a tax-exempt teaching hospital on specimens needed for the conduct of its teaching activities is not an unrelated trade or business. Http www hrblock com However, laboratory testing performed by a tax-exempt non-teaching hospital on referred specimens from private office patients of staff physicians is an unrelated trade or business if these services are otherwise available in the community. Http www hrblock com Selling endorsements. Http www hrblock com   An exempt scientific organization enjoys an excellent reputation in the field of biological research. Http www hrblock com It exploits this reputation regularly by selling endorsements of laboratory equipment to manufacturers. Http www hrblock com Endorsing laboratory equipment does not contribute importantly to the accomplishment of any purpose for which exemption is granted to the organization. Http www hrblock com Accordingly, the sale of endorsements is an unrelated trade or business. Http www hrblock com Sponsoring entertainment events. Http www hrblock com   An exempt university has a regular faculty and a regularly enrolled student body. Http www hrblock com During the school year, the university sponsors the appearance of professional theater companies and symphony orchestras that present drama and musical performances for the students and faculty members. Http www hrblock com Members of the general public also are admitted. Http www hrblock com The university advertises these performances and supervises advance ticket sales at various places, including such university facilities as the cafeteria and the university bookstore. Http www hrblock com Although the presentation of the performances makes use of an intangible generated by the university's exempt educational functions—the presence of the student body and faculty—such drama and music events contribute importantly to the overall educational and cultural functions of the university. Http www hrblock com Therefore, the activity is not an unrelated trade or business. Http www hrblock com Excluded Trade or Business Activities The following activities are specifically excluded from the definition of unrelated trade or business. Http www hrblock com Volunteer workforce. Http www hrblock com   Any trade or business in which substantially all the work is performed for the organization without compensation is not an unrelated trade or business. Http www hrblock com Example 1. Http www hrblock com A retail store operated by an exempt orphanage where unpaid volunteers perform substantially all the work in carrying on the business is not an unrelated trade or business. Http www hrblock com Example 2. Http www hrblock com A volunteer fire company conducts weekly public dances. Http www hrblock com Holding public dances and charging admission on a regular basis may, given the facts and circumstances of a particular case, be considered an unrelated trade or business. Http www hrblock com However, because the work at the dances is performed by unpaid volunteers, the activity is not an unrelated trade or business. Http www hrblock com Convenience of members. Http www hrblock com   A trade or business conducted by a 501(c)(3) organization or by a governmental college or university primarily for the convenience of its members, students, patients, officers, or employees is not an unrelated trade or business. Http www hrblock com For example, a laundry operated by a college for the purpose of laundering dormitory linens and students' clothing is not an unrelated trade or business. Http www hrblock com Qualified sponsorship activities. Http www hrblock com   Soliciting and receiving qualified sponsorship payments is not an unrelated trade or business, and the payments are not subject to unrelated business income tax. Http www hrblock com Qualified sponsorship payment. Http www hrblock com   This is any payment made by a person engaged in a trade or business for which the person will receive no substantial benefit other than the use or acknowledgment of the business name, logo, or product lines in connection with the organization's activities. Http www hrblock com “Use or acknowledgment” does not include advertising the sponsor's products or services. Http www hrblock com The organization's activities include all its activities, whether or not related to its exempt purposes. Http www hrblock com   For example, if, in return for receiving a sponsorship payment, an organization promises to use the sponsor's name or logo in acknowledging the sponsor's support for an educational or fundraising event, the payment is a qualified sponsorship payment and is not subject to the unrelated business income tax. Http www hrblock com   Providing facilities, services, or other privileges (for example, complimentary tickets, pro-am playing spots in golf tournaments, or receptions for major donors) to a sponsor or the sponsor's designees in connection with a sponsorship payment does not affect whether the payment is a qualified sponsorship payment. Http www hrblock com Instead, providing these goods or services is treated as a separate transaction in determining whether the organization has unrelated business income from the event. Http www hrblock com Generally, if the services or facilities are not a substantial benefit or if providing them is a related business activity, the payments will not be subject to the unrelated business income tax. Http www hrblock com   Similarly, the sponsor's receipt of a license to use an intangible asset (for example, a trademark, logo, or designation) of the organization is treated as separate from the qualified sponsorship transaction in determining whether the organization has unrelated business taxable income. Http www hrblock com   If part of a payment would be a qualified sponsorship payment if paid separately, that part is treated as a separate payment. Http www hrblock com For example, if a sponsorship payment entitles the sponsor to both product advertising and the use or acknowledgment of the sponsor's name or logo by the organization, then the unrelated business income tax does not apply to the part of the payment that is more than the fair market value of the product advertising. Http www hrblock com Advertising. Http www hrblock com   A payment is not a qualified sponsorship payment if, in return, the organization advertises the sponsor's products or services. Http www hrblock com For information on the treatment of payments for advertising, see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Http www hrblock com   Advertising includes: Messages containing qualitative or comparative language, price information, or other indications of savings or value; Endorsements; and Inducements to purchase, sell, or use the products or services. Http www hrblock com   The use of promotional logos or slogans that are an established part of the sponsor's identity is not, by itself, advertising. Http www hrblock com In addition, mere distribution or display of a sponsor's product by the organization to the public at a sponsored event, whether for free or for remuneration, is considered use or acknowledgment of the product rather than advertising. Http www hrblock com Exception for contingent payments. Http www hrblock com   A payment is not a qualified sponsorship payment if its amount is contingent, by contract or otherwise, upon the level of attendance at one or more events, broadcast ratings, or other factors indicating the degree of public exposure to one or more events. Http www hrblock com However, the fact that a sponsorship payment is contingent upon an event actually taking place or being broadcast does not, by itself, affect whether a payment qualifies. Http www hrblock com Exception for periodicals. Http www hrblock com   A payment is not a qualified sponsorship payment if it entitles the payer to the use or acknowledgment of the business name, logo, or product lines in the organization's periodical. Http www hrblock com For this purpose, a periodical is any regularly scheduled and printed material (for example, a monthly journal) published by or on behalf of the organization. Http www hrblock com It does not include material that is related to and primarily distributed in connection with a specific event conducted by the organization (for example, a program or brochure distributed at a sponsored event). Http www hrblock com   The treatment of payments that entitle the payer to the depiction of the payer's name, logo, or products lines in an organization's periodical is determined under the rules that apply to advertising activities. Http www hrblock com See Sales of advertising space under Examples, earlier in this chapter. Http www hrblock com Also see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Http www hrblock com Exception for conventions and trade shows. Http www hrblock com   A payment is not a qualified sponsorship payment if it is made in connection with any qualified convention or trade show activity. Http www hrblock com The exclusion of qualified convention or trade show activities from the definition of unrelated trade or business is explained later under Convention or trade show activity. Http www hrblock com Selling donated merchandise. Http www hrblock com   A trade or business that consists of selling merchandise, substantially all of which the organization received as gifts or contributions, is not an unrelated trade or business. Http www hrblock com For example, a thrift shop operated by a tax-exempt organization that sells donated clothes and books to the general public, with the proceeds going to the exempt organization, is not an unrelated trade or business. Http www hrblock com Employee association sales. Http www hrblock com   The sale of certain items by a local association of employees described in section 501(c)(4), organized before May 17, 1969, is not an unrelated trade or business if the items are sold for the convenience of the association's members at their usual place of employment. Http www hrblock com This exclusion applies only to the sale of work-related clothes and equipment and items normally sold through vending machines, food dispensing facilities, or by snack bars. Http www hrblock com Bingo games. Http www hrblock com   Certain bingo games are not included in the term “unrelated trade or business. Http www hrblock com ” To qualify for this exclusion, the bingo game must meet the following requirements. Http www hrblock com It meets the legal definition of bingo. Http www hrblock com It is legal where it is played. Http www hrblock com It is played in a jurisdiction where bingo games are not regularly conducted by for-profit organizations. Http www hrblock com Legal definition. Http www hrblock com   For a game to meet the legal definition of bingo, wagers must be placed, winners must be determined, and prizes or other property must be distributed in the presence of all persons placing wagers in that game. Http www hrblock com   A wagering game that does not meet the legal definition of bingo does not qualify for the exclusion, regardless of its name. Http www hrblock com For example, “instant bingo,” in which a player buys a pre-packaged bingo card with pull-tabs that the player removes to determine if he or she is a winner, does not qualify. Http www hrblock com Legal where played. Http www hrblock com   This exclusion applies only if bingo is legal under the laws of the jurisdiction where it is conducted. Http www hrblock com The fact that a jurisdiction's law that prohibits bingo is rarely enforced or is widely disregarded does not make the conduct of bingo legal for this purpose. Http www hrblock com No for-profit games where played. Http www hrblock com   This exclusion applies only if for-profit organizations cannot regularly conduct bingo games in any part of the same jurisdiction. Http www hrblock com Jurisdiction is normally the entire state; however, in certain situations, local jurisdiction will control. Http www hrblock com Example. Http www hrblock com Tax-exempt organizations X and Y are organized under the laws of state N, which has a law that permits exempt organizations to conduct bingo games. Http www hrblock com In addition, for-profit organizations are permitted to conduct bingo games in city S, a resort community located in county R. Http www hrblock com Several for-profit organizations conduct nightly games. Http www hrblock com Y conducts weekly bingo games in city S, while X conducts weekly games in county R. Http www hrblock com Since state law confines the for-profit organizations to city S, local jurisdiction controls. Http www hrblock com Y's bingo games conducted in city S are an unrelated trade or business. Http www hrblock com However, X's bingo games conducted in county R outside of city S are not an unrelated trade or business. Http www hrblock com Gambling activities other than bingo. Http www hrblock com   Any game of chance conducted by an exempt organization in North Dakota is not an unrelated trade or business if conducting the game does not violate any state or local law. Http www hrblock com Pole rentals. Http www hrblock com   The term unrelated trade or business does not include qualified pole rentals by a mutual or cooperative telephone or electric company described in section 501(c)(12). Http www hrblock com A qualified pole rental is the rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that the company uses in providing telephone or electric services to its members, and According to the rental, to support one or more wires (in addition to the wires described in 1 ) for use in connection with the transmission by wire of electricity or of telephone or other communications. Http www hrblock com For this purpose, the term rental includes any sale of the right to use the pole (or other structure). Http www hrblock com Distribution of low cost articles. Http www hrblock com   The term unrelated trade or business does not include activities relating to the distribution of low cost articles incidental to soliciting charitable contributions. Http www hrblock com This applies to organizations described in section 501 that are eligible to receive charitable contributions. Http www hrblock com   A distribution is considered incidental to the solicitation of a charitable contribution if: The recipient did not request the distribution, The distribution is made without the express consent of the recipient, and The article is accompanied by a request for a charitable contribution to the organization and a statement that the recipient may keep the low cost article regardless of whether a contribution is made. Http www hrblock com   An article is considered low cost if the cost of an item (or the aggregate costs if more than one item) distributed to a single recipient in a tax year is not more than $5, indexed annually for inflation. Http www hrblock com The maximum cost of a low cost article is $9. Http www hrblock com 70 for 2011. Http www hrblock com The cost of an article is the cost to the organization that distributes the item or on whose behalf it is distributed. Http www hrblock com Exchange or rental of member lists. Http www hrblock com   The exchange or rental of member or donor lists between organizations described in section 501 that are eligible to receive charitable contributions is not included in the term unrelated trade or business. Http www hrblock com Hospital services. Http www hrblock com   The providing of certain services at or below cost by an exempt hospital to other exempt hospitals that have facilities for 100 or fewer inpatients is not an unrelated trade or business. Http www hrblock com This exclusion applies only to services described in section 501(e)(1)(A). Http www hrblock com Public entertainment activity. Http www hrblock com   An unrelated trade or business does not include a qualified public entertainment activity. Http www hrblock com A public entertainment activity is one traditionally conducted at a fair or exposition promoting agriculture and education, including any activity whose purpose is designed to attract the public to fairs or expositions or to promote the breeding of animals or the development of products or equipment. Http www hrblock com   A qualified public entertainment activity is one conducted by a qualifying organization: In conjunction with an international, national, state, regional, or local fair or exposition; In accordance with state law that permits the activity to be operated or conducted solely by such an organization or by an agency, instrumentality, or political subdivision of the state; or In accordance with state law that permits an organization to be granted a license to conduct an activity for not more than 20 days on paying the state a lower percentage of the revenue from the activity than the state charges nonqualifying organizations that hold similar activities. Http www hrblock com   For these purposes, a qualifying organization is an organization described in section 501(c)(3), 501(c)(4), or 501(c)(5) that regularly conducts an agricultural and educational fair or exposition as one of its substantial exempt purposes. Http www hrblock com Its conducting qualified public entertainment activities will not affect determination of its exempt status. Http www hrblock com Convention or trade show activity. Http www hrblock com   An unrelated trade or business does not include qualified convention or trade show activities conducted at a convention, annual meeting, or trade show. Http www hrblock com   A qualified convention or trade show activity is any activity of a kind traditionally conducted by a qualifying organization in conjunction with an international, national, state, regional, or local convention, annual meeting, or show if: One of the purposes of the organization in sponsoring the activity is promoting and stimulating interest in, and demand for, the products and services of that industry or educating the persons in attendance regarding new products and services or new rules and regulations affecting the industry; and The show is designed to achieve its purpose through the character of the exhibits and the extent of the industry products that are displayed. Http www hrblock com   For these purposes, a qualifying organization is one described in section 501(c)(3), 501(c)(4), 501(c)(5), or 501(c)(6). Http www hrblock com The organization must regularly conduct, as one of its substantial exempt purposes, a qualified convention or trade show activity. Http www hrblock com   The rental of display space to exhibitors (including exhibitors who are suppliers) at a qualified convention or trade show is not an unrelated trade or business even if the exhibitors who rent the space are permitted to sell or solicit orders. Http www hrblock com For this purpose, a supplier's exhibit is one in which the exhibitor displays goods or services that are supplied to, rather than by, members of the qualifying organization in the conduct of these members' own trades or businesses. Http www hrblock com    Certain Internet activities conducted by a trade association described in section 501(c)(6) will be considered qualified convention and trade show activity if conducted on a special supplementary section of the association's website in conjunction with a trade show conducted by the association. Http www hrblock com The trade show itself must be a qualified convention and trade show activity. Http www hrblock com The supplementary section of the website must be ancillary to, and serve to augment and enhance, the trade show, as when it makes available the same information available at the trade show and is available only during a time period that coincides with the time period that the trade show is in operation. Http www hrblock com Conversely, Internet activities that are not conducted in conjunction with a qualified convention and trade show activity and that do not augment and enhance the trade show cannot themselves be qualified convention and trade show activity. Http www hrblock com Prev  Up  Next   Home   More Online Publications