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Turbo Tax Military

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Turbo Tax Military

Turbo tax military 2. Turbo tax military   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Turbo tax military The pay may be in cash, property, or services. Turbo tax military It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Turbo tax military For information about deducting employment taxes, see chapter 5. Turbo tax military You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Turbo tax military Empowerment zone employment credit (Form 8844). Turbo tax military Indian employment credit (Form 8845). Turbo tax military Work opportunity credit (Form 5884). Turbo tax military Credit for employer differential wage payments (Form 8932). Turbo tax military Reduce your deduction for employee wages by the amount of employment credits you claim. Turbo tax military For more information about these credits, see the form on which the credit is claimed. Turbo tax military Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. Turbo tax military Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Turbo tax military These and other requirements that apply to all business expenses are explained in chapter 1. Turbo tax military In addition, the pay must meet both of the following tests. Turbo tax military Test 1. Turbo tax military It must be reasonable. Turbo tax military Test 2. Turbo tax military It must be for services performed. Turbo tax military The form or method of figuring the pay does not affect its deductibility. Turbo tax military For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Turbo tax military Test 1—Reasonableness You must be able to prove that the pay is reasonable. Turbo tax military Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Turbo tax military If the pay is excessive, the excess pay is disallowed as a deduction. Turbo tax military Factors to consider. Turbo tax military   Determine the reasonableness of pay by the facts and circumstances. Turbo tax military Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Turbo tax military   To determine if pay is reasonable, also consider the following items and any other pertinent facts. Turbo tax military The duties performed by the employee. Turbo tax military The volume of business handled. Turbo tax military The character and amount of responsibility. Turbo tax military The complexities of your business. Turbo tax military The amount of time required. Turbo tax military The cost of living in the locality. Turbo tax military The ability and achievements of the individual employee performing the service. Turbo tax military The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Turbo tax military Your policy regarding pay for all your employees. Turbo tax military The history of pay for each employee. Turbo tax military Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Turbo tax military Employee-shareholder salaries. Turbo tax military   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Turbo tax military The excessive part of the salary would not be allowed as a salary deduction by the corporation. Turbo tax military For more information on corporate distributions to shareholders, see Publication 542, Corporations. Turbo tax military Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Turbo tax military For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Turbo tax military Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Turbo tax military If you give property to an employee as an employee achievement award, your deduction may be limited. Turbo tax military Achievement awards. Turbo tax military   An achievement award is an item of tangible personal property that meets all the following requirements. Turbo tax military It is given to an employee for length of service or safety achievement. Turbo tax military It is awarded as part of a meaningful presentation. Turbo tax military It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Turbo tax military Length-of-service award. Turbo tax military    An award will qualify as a length-of-service award only if either of the following applies. Turbo tax military The employee receives the award after his or her first 5 years of employment. Turbo tax military The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Turbo tax military Safety achievement award. Turbo tax military    An award for safety achievement will qualify as an achievement award unless one of the following applies. Turbo tax military It is given to a manager, administrator, clerical employee, or other professional employee. Turbo tax military During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Turbo tax military Deduction limit. Turbo tax military   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Turbo tax military $400 for awards that are not qualified plan awards. Turbo tax military $1,600 for all awards, whether or not qualified plan awards. Turbo tax military   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Turbo tax military   A highly compensated employee is an employee who meets either of the following tests. Turbo tax military The employee was a 5% owner at any time during the year or the preceding year. Turbo tax military The employee received more than $115,000 in pay for the preceding year. Turbo tax military You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Turbo tax military   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Turbo tax military To figure this average cost, ignore awards of nominal value. Turbo tax military Deduct achievement awards as a nonwage business expense on your return or business schedule. Turbo tax military You may not owe employment taxes on the value of some achievement awards you provide to an employee. Turbo tax military See Publication 15-B. Turbo tax military Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Turbo tax military However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Turbo tax military If the bonus is paid in property, see Property , later. Turbo tax military Gifts of nominal value. Turbo tax military    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Turbo tax military Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Turbo tax military For more information on this deduction limit, see Meals and lodging , later. Turbo tax military Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Turbo tax military Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Turbo tax military For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Turbo tax military Fringe Benefits A fringe benefit is a form of pay for the performance of services. Turbo tax military You can generally deduct the cost of fringe benefits. Turbo tax military You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Turbo tax military You also may not owe employment taxes on the value of the fringe benefits. Turbo tax military See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Turbo tax military Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Turbo tax military Certain fringe benefits are discussed next. Turbo tax military See Publication 15-B for more details on these and other fringe benefits. Turbo tax military Meals and lodging. Turbo tax military   You can usually deduct the cost of furnishing meals and lodging to your employees. Turbo tax military Deduct the cost in whatever category the expense falls. Turbo tax military For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Turbo tax military If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Turbo tax military Deduction limit on meals. Turbo tax military   You can generally deduct only 50% of the cost of furnishing meals to your employees. Turbo tax military However, you can deduct the full cost of the following meals. Turbo tax military Meals whose value you include in an employee's wages. Turbo tax military Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Turbo tax military This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Turbo tax military Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Turbo tax military Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Turbo tax military Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Turbo tax military This does not include meals you furnish on vessels primarily providing luxury water transportation. Turbo tax military Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Turbo tax military This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Turbo tax military Employee benefit programs. Turbo tax military   Employee benefit programs include the following. Turbo tax military Accident and health plans. Turbo tax military Adoption assistance. Turbo tax military Cafeteria plans. Turbo tax military Dependent care assistance. Turbo tax military Education assistance. Turbo tax military Life insurance coverage. Turbo tax military Welfare benefit funds. Turbo tax military   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Turbo tax military For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Turbo tax military ). Turbo tax military Life insurance coverage. Turbo tax military   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Turbo tax military See Regulations section 1. Turbo tax military 264-1 for more information. Turbo tax military Welfare benefit funds. Turbo tax military   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Turbo tax military Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Turbo tax military   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Turbo tax military If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Turbo tax military   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Turbo tax military The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Turbo tax military The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Turbo tax military These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Turbo tax military   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Turbo tax military Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Turbo tax military However, if the employee performs no services, treat the amount you advanced as a loan. Turbo tax military If the employee does not repay the loan, treat it as income to the employee. Turbo tax military Below-market interest rate loans. Turbo tax military   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Turbo tax military See Below-Market Loans in chapter 4. Turbo tax military Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Turbo tax military The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Turbo tax military You can claim the deduction only for the tax year in which your employee includes the property's value in income. Turbo tax military Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Turbo tax military You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Turbo tax military Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Turbo tax military These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Turbo tax military Restricted property. Turbo tax military   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Turbo tax military However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Turbo tax military    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Turbo tax military This means that the recipient is not likely to have to give up his or her rights in the property in the future. Turbo tax military Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Turbo tax military However, your deduction may be limited. Turbo tax military If you make the payment under an accountable plan, deduct it in the category of the expense paid. Turbo tax military For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Turbo tax military If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Turbo tax military See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Turbo tax military Sick and Vacation Pay Sick pay. Turbo tax military   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Turbo tax military However, your deduction is limited to amounts not compensated by insurance or other means. Turbo tax military Vacation pay. Turbo tax military   Vacation pay is an employee benefit. Turbo tax military It includes amounts paid for unused vacation leave. Turbo tax military You can deduct vacation pay only in the tax year in which the employee actually receives it. Turbo tax military This rule applies regardless of whether you use the cash or accrual method of accounting. Turbo tax military Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Tropical Storm Debby in Florida

Updated 7/19/2012 to include Citrus, Gilchrist, Lafayette, Polk, Sarasota counties.
Updated 7/13/2012 to include Hillsborough, Manatee and Taylor counties.

FL-2012-07, Jul. 5, 2012

PLANTATION — Victims of tropical storm Debby that began on June 23, 2012 in parts of Florida may qualify for tax relief from the Internal Revenue Service.

The President has declared Baker, Bradford, Citrus, Clay, Columbia, Duval, Franklin, Gilchrist, Hernando, Highlands, Hillsborough, Lafayette, Manatee, Nassau, Pasco, Pinellas, Polk, Sarasota, Suwannee, Taylor, Union, and Wakulla counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after June 23, and on or before Aug. 22, have been postponed to Aug. 22, 2012.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after June 23, and on or before July 9, as long as the deposits are made by July 9, 2012.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Aug. 22 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after June 23 and on or before Aug. 22.

The IRS also gives affected taxpayers until Aug. 22 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after June 23 and on or before Aug. 22.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after June 23 and on or before July 9 provided the taxpayer makes these deposits by July 9.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year's return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year's return should put the Disaster Designation "Florida/Tropical Storm Debby" at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

Disaster Assistance and Emergency Relief for Individuals and Businesses
Recent IRS Disaster Relief Announcements

Page Last Reviewed or Updated: 25-Jun-2013

The Turbo Tax Military

Turbo tax military 3. Turbo tax military   Unrelated Trade or Business Table of Contents Selling of products of exempt functions. Turbo tax military Dual use of assets or facilities. Turbo tax military Exploitation of exempt functions. Turbo tax military ExamplesExceptions. Turbo tax military Excluded Trade or Business ActivitiesQualified sponsorship payment. Turbo tax military Advertising. Turbo tax military Exception for contingent payments. Turbo tax military Exception for periodicals. Turbo tax military Exception for conventions and trade shows. Turbo tax military Legal definition. Turbo tax military Legal where played. Turbo tax military No for-profit games where played. Turbo tax military Unrelated business income. Turbo tax military   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. Turbo tax military   Certain trade or business activities are not treated as an unrelated trade or business. Turbo tax military See Excluded Trade or Business Activities, later. Turbo tax military Trade or business. Turbo tax military   The term “trade or business” generally includes any activity conducted for the production of income from selling goods or performing services. Turbo tax military 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. Turbo tax military   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. Turbo tax military 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. Turbo tax military Regularly conducted. Turbo tax military   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. Turbo tax military   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. Turbo tax military The stand would not compete with similar facilities that a nonexempt organization would ordinarily operate year-round. Turbo tax military However, operating a commercial parking lot every Saturday, year-round, would be the regular conduct of a trade or business. Turbo tax military Not substantially related. Turbo tax military    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). Turbo tax military Whether an activity contributes importantly depends in each case on the facts involved. Turbo tax military   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. Turbo tax military 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. Turbo tax military The part of the activity that is more than needed to accomplish the exempt purpose is an unrelated trade or business. Turbo tax military   Also in determining whether activities contribute importantly to the accomplishment of an exempt purpose, the following principles apply. Turbo tax military Selling of products of exempt functions. Turbo tax military   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. Turbo tax military 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. Turbo tax military   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. Turbo tax military 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. Turbo tax military But if the organization uses the milk and cream in the further manufacture of food items such as ice cream, pastries, etc. Turbo tax military , 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. Turbo tax military Dual use of assets or facilities. Turbo tax military   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. Turbo tax military The test, as discussed earlier, is whether the activities contribute importantly to the accomplishment of exempt purposes. Turbo tax military   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. Turbo tax military The theater is a principal feature of the museum and operates continuously while the museum is open to the public. Turbo tax military 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. Turbo tax military   For information on allocating expenses for the dual use of assets or facilities, see Deductions in chapter 4. Turbo tax military Exploitation of exempt functions. Turbo tax military   Exempt activities sometimes create goodwill or other intangibles that can be exploited in a commercial way. Turbo tax military 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. Turbo tax military Unless the commercial exploitation contributes importantly to the accomplishment of the exempt purpose, the commercial activities are an unrelated trade or business. Turbo tax military   For the treatment of expenses attributable to the exploitation of exempt activities, see Deductions in chapter 4. Turbo tax military 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. Turbo tax military Sales commissions. Turbo tax military   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. Turbo tax military Artists' facilities. Turbo tax military   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. Turbo tax military These two activities do not contribute importantly to accomplishing the organization's exempt purpose. Turbo tax military Therefore, they are unrelated trades or businesses. Turbo tax military Membership list sales. Turbo tax military   An exempt educational organization regularly sells membership mailing lists to business firms. Turbo tax military This activity does not contribute importantly to the accomplishment of the organization's exempt purpose and therefore is an unrelated trade or business. Turbo tax military Also see Exchange or rental of member lists under Excluded Trade or Business Activities, later. Turbo tax military Hospital facilities. Turbo tax military   An exempt hospital leases its adjacent office building and furnishes certain office services to a hospital-based medical group for a fee. Turbo tax military 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. Turbo tax military The leasing activity is substantially related to the hospital's exempt purpose and is not an unrelated trade or business. Turbo tax military   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. Turbo tax military These activities are also substantially related to the hospital's exempt purpose and do not constitute unrelated trades or businesses. Turbo tax military Book publishing. Turbo tax military   An exempt organization engages primarily in activities that further its exempt purposes. Turbo tax military It also owns the publication rights to a book that does not relate to any of its exempt purposes. Turbo tax military 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. Turbo tax military These activities constitute a trade or business regularly conducted. Turbo tax military 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. Turbo tax military   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. Turbo tax military See Royalties under Exclusions in chapter 4. Turbo tax military School handicraft shop. Turbo tax military   An exempt vocational school operates a handicraft shop that sells articles made by students in their regular courses of instruction. Turbo tax military The students are paid a percentage of the sales price. Turbo tax military In addition, the shop sells products made by local residents who make articles at home according to the shop's specifications. Turbo tax military The shop manager periodically inspects the articles during their manufacture to ensure that they meet desired standards of style and quality. Turbo tax military Although many local participants are former students of the school, any qualified person may participate in the program. Turbo tax military 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. Turbo tax military School facilities. Turbo tax military   An exempt school has tennis courts and dressing rooms that it uses during the regular school year in its educational program. Turbo tax military During the summer, the school operates a tennis club open to the general public. Turbo tax military Employees of the school run the club, including collecting membership fees and scheduling court time. Turbo tax military   Another exempt school leases the same type of facilities to an unrelated individual who runs a tennis club for the summer. Turbo tax military The lease is for a fixed fee that does not depend on the income or profits derived from the leased property. Turbo tax military   In both situations, the exempt purpose is the advancement of education. Turbo tax military Furnishing tennis facilities in the manner described does not further that exempt purpose. Turbo tax military These activities are unrelated trades or businesses. Turbo tax military 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. Turbo tax military See Rents under Exclusions in chapter 4. Turbo tax military Services provided with lease. Turbo tax military   An exempt university leases its football stadium during several months of the year to a professional football team for a fixed fee. Turbo tax military Under the lease agreement, the university furnishes heat, light, and water and is responsible for all ground maintenance. Turbo tax military It also provides dressing room, linen, and stadium security services for the professional team. Turbo tax military   Leasing of the stadium is an unrelated trade or business. Turbo tax military 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. Turbo tax military Therefore, the income from this lease is rent from real property and unrelated business taxable income. Turbo tax military Broadcasting rights. Turbo tax military   An exempt collegiate athletic conference conducts an annual competitive athletic game between its conference champion and another collegiate team. Turbo tax military Income is derived from admission charges and the sale of exclusive broadcasting rights to a national radio and television network. Turbo tax military An athletic program is considered an integral part of the educational process of a university. Turbo tax military   The educational purposes served by intercollegiate athletics are identical whether conducted directly by individual universities or by their regional athletic conference. Turbo tax military 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. Turbo tax military 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. Turbo tax military   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. Turbo tax military 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. Turbo tax military   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. Turbo tax military The sale of the rights and the broadcasting of the events contribute importantly to the organization's exempt purpose. Turbo tax military Therefore, the sale of the exclusive broadcasting rights is not an unrelated trade or business. Turbo tax military Yearbook advertising. Turbo tax military   An exempt organization receives income from the sale of advertising in its annual yearbook. Turbo tax military 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. Turbo tax military This firm is paid a percentage of the gross advertising receipts for selling the advertising, collecting from advertisers, and printing the yearbook. Turbo tax military This advertising activity is an unrelated trade or business. Turbo tax military Pet boarding and grooming services. Turbo tax military   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. Turbo tax military These activities do not contribute importantly to its purpose of preventing cruelty to animals. Turbo tax military Museum eating facilities. Turbo tax military   An exempt art museum operates a dining room, a cafeteria, and a snack bar for use by the museum staff, employees, and visitors. Turbo tax military 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. Turbo tax military The eating facilities also allow the museum staff and employees to remain in the museum throughout the day. Turbo tax military 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. Turbo tax military Halfway house workshop. Turbo tax military   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. Turbo tax military The profits are applied to the operating costs of the halfway house. Turbo tax military 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. Turbo tax military Travel tour programs. Turbo tax military   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. Turbo tax military Example 1. Turbo tax military A tax-exempt university alumni association provides a travel tour program for its members and their families. Turbo tax military The organization works with various travel agencies and schedules approximately ten tours a year to various places around the world. Turbo tax military It mails out promotional material and accepts reservations for fees paid by the travel agencies on a per-person basis. Turbo tax military The organization provides an employee for each tour as a tour leader. Turbo tax military There is no formal educational program conducted with these tours, and they do not differ from regular commercially operated tours. Turbo tax military By providing travel tours to its members, the organization is engaging in a regularly conducted trade or business. Turbo tax military 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. Turbo tax military Therefore, the sale of the travel tours is an unrelated trade or business. Turbo tax military Example 2. Turbo tax military 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. Turbo tax military These tours are conducted by teachers and others certified by the state board of education. Turbo tax military 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. Turbo tax military A tour's study program consists of instruction on subjects related to the location being visited on the tour. Turbo tax military Each tour group brings along a library of material related to the subjects being studied on the tour. Turbo tax military During the tour, 5 or 6 hours per day are devoted to organized study, preparation of reports, lectures, instruction, and recitation by the students. Turbo tax military Examinations are given at the end of each tour. Turbo tax military The state board of education awards academic credit for tour participation. Turbo tax military Because these tours are substantially related to the organization's exempt purpose, they are not an unrelated trade or business. Turbo tax military Insurance programs. Turbo tax military   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. Turbo tax military Exceptions. Turbo tax military   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. Turbo tax military Magazine publishing. Turbo tax military   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. Turbo tax military   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. Turbo tax military 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. Turbo tax military   Since the activity does not contribute importantly to the organization's exempt function, it is an unrelated trade or business. Turbo tax military Directory of members. Turbo tax military   A business league publishes an annual directory that contains a list of all its members, their addresses, and their area of expertise. Turbo tax military 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. Turbo tax military The directory contains no commercial advertisement and is sold only to the organization's members. Turbo tax military   The directory facilitates communication among the members and encourages the exchange of ideas and expertise. Turbo tax military 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. Turbo tax military The sale of the directory does contribute importantly to the organization's exempt purpose and is not an unrelated trade or business. Turbo tax military This directory differs from the publication discussed next because of its noncommercial characteristics. Turbo tax military Sales of advertising space. Turbo tax military   A national association of law enforcement officials publishes a monthly journal that contains articles and other editorial material of professional interest to its members. Turbo tax military The journal is distributed without charge, mainly to the organization's members. Turbo tax military   The organization sells advertising space in the journal either for conventional advertising or to merely identify the purchaser without a commercial message. Turbo tax military Some of the noncommercial advertising identifies the purchaser in a separate space, and some consists of listings of 60 or more purchasers per page. Turbo tax military A business firm identified in a separate space is further identified in an Index of Advertisers. Turbo tax military   The organization solicits advertising by personal contacts. Turbo tax military Advertising from large firms is solicited by contacting their chief executive officer or community relations officer rather than their advertising manager. Turbo tax military The organization also solicits advertising in form letters appealing for corporate and personal contributions. Turbo tax military   An exempt organization's sale of advertising placed for the purchaser's commercial benefit is a commercial activity. Turbo tax military Goodwill derived by the purchaser from being identified as a patron of the organization is usually considered a form of commercial benefit. Turbo tax military 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. Turbo tax military However, this presumption is not conclusive if the purchaser's patronage would be difficult to justify commercially in view of the facts and circumstances. Turbo tax military In that case, other factors should also be considered in determining whether a commercial benefit can be expected. Turbo tax military 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. Turbo tax military   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. Turbo tax military However, the purchaser of a listing cannot expect more than an inconsequential benefit. Turbo tax military Therefore, the sale of separate spaces, but not the listings, is an unrelated trade or business. Turbo tax military Publishing legal notices. Turbo tax military   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. Turbo tax military 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. Turbo tax military The state designated the bar association's journal as the place to publish the required notices. Turbo tax military   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. Turbo tax military 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. Turbo tax military Therefore, the advertising income is unrelated trade or business income. Turbo tax military   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. Turbo tax military This promotes the common interests of the legal profession and contributes importantly to the association's exempt purposes. Turbo tax military Therefore, the publishing of legal notices does not constitute an unrelated trade or business. Turbo tax military Museum greeting card sales. Turbo tax military    An art museum that exhibits modern art sells greeting cards that display printed reproductions of selected works from other art collections. Turbo tax military 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. Turbo tax military The cards contain appropriate greetings and are personalized on request. Turbo tax military   The organization sells the cards in the shop it operates in the museum and sells them at quantity discounts to retail stores. Turbo tax military It also sells them by mail order through a catalog that is advertised in magazines and other publications throughout the year. Turbo tax military As a result, a large number of cards are sold at a significant profit. Turbo tax military   The museum is exempt as an educational organization on the basis of its ownership, maintenance, and exhibition for public viewing of works of art. Turbo tax military 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. Turbo tax military The cards may encourage more people to visit the museum itself to share in its educational programs. Turbo tax military 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. Turbo tax military Therefore, these sales activities are not an unrelated trade or business. Turbo tax military Museum shop. Turbo tax military   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. Turbo tax military   The shop also rents originals or reproductions of paintings contained in its collection. Turbo tax military 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. Turbo tax military   Each line of merchandise must be considered separately to determine if sales are related to the exempt purpose. Turbo tax military   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. Turbo tax military The same is true for the sale of literature relating to art. Turbo tax military Therefore, these sales activities are not an unrelated trade or business. Turbo tax military   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. Turbo tax military 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. Turbo tax military 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. Turbo tax military Therefore, these sales are an unrelated trade or business. Turbo tax military Business league's parking and bus services. Turbo tax military   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. Turbo tax military It also operates, as an insubstantial part of its activities, a park and shop plan. Turbo tax military   The fringe parking lot and shuttle bus service operate in a manner that does not favor any individual or group of downtown merchants. Turbo tax military The merchants cannot offer free or discount parking or bus fares to their customers. Turbo tax military   The park and shop plan allows customers of particular merchants to park free at certain parking lots in the area. Turbo tax military Merchants participating in this plan buy parking stamps, which they distribute to their customers to use to pay for parking. Turbo tax military   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. Turbo tax military That activity contributes importantly to the organization's accomplishing its exempt purpose and is not an unrelated trade or business. Turbo tax military   The park and shop plan encourages customers to use a limited number of participating member merchants in order to obtain free parking. Turbo tax military This provides a particular service to individual members of the organization and does not further its exempt purpose. Turbo tax military Therefore, operating the park and shop plan is an unrelated trade or business. Turbo tax military Youth residence. Turbo tax military   An exempt organization, whose purpose is to provide for the welfare of young people, rents rooms primarily to people under age 25. Turbo tax military 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. Turbo tax military 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. Turbo tax military The rentals are not an unrelated trade or business because renting the rooms is substantially related to the organization's exempt purpose. Turbo tax military Health club program. Turbo tax military   An exempt charitable organization's purpose is to provide for the welfare of young people. Turbo tax military 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. Turbo tax military Nominal annual dues are charged for membership in the organization and use of the facilities. Turbo tax military   In addition, the organization organized a health club program that its members could join for an annual fee in addition to the annual dues. Turbo tax military 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. Turbo tax military   The health club program is in addition to the general physical fitness program of the organization. Turbo tax military Operating this program does not contribute importantly to the organization's accomplishing its exempt purpose and, therefore, is an unrelated trade or business. Turbo tax military Miniature golf course. Turbo tax military   An exempt youth welfare organization operates a miniature golf course that is open to the general public. Turbo tax military The course, which is managed by salaried employees, is substantially similar to commercial courses. Turbo tax military The admission fees charged are comparable to fees of commercial facilities and are designed to return a profit. Turbo tax military   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. Turbo tax military Sales of hearing aids. Turbo tax military   A tax-exempt hospital, whose primary activity is rehabilitation, sells hearing aids to patients. Turbo tax military 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. Turbo tax military It is not an unrelated trade or business. Turbo tax military Nonpatient laboratory testing. Turbo tax military   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. Turbo tax military 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. Turbo tax military Selling endorsements. Turbo tax military   An exempt scientific organization enjoys an excellent reputation in the field of biological research. Turbo tax military It exploits this reputation regularly by selling endorsements of laboratory equipment to manufacturers. Turbo tax military Endorsing laboratory equipment does not contribute importantly to the accomplishment of any purpose for which exemption is granted to the organization. Turbo tax military Accordingly, the sale of endorsements is an unrelated trade or business. Turbo tax military Sponsoring entertainment events. Turbo tax military   An exempt university has a regular faculty and a regularly enrolled student body. Turbo tax military 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. Turbo tax military Members of the general public also are admitted. Turbo tax military The university advertises these performances and supervises advance ticket sales at various places, including such university facilities as the cafeteria and the university bookstore. Turbo tax military 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. Turbo tax military Therefore, the activity is not an unrelated trade or business. Turbo tax military Excluded Trade or Business Activities The following activities are specifically excluded from the definition of unrelated trade or business. Turbo tax military Volunteer workforce. Turbo tax military   Any trade or business in which substantially all the work is performed for the organization without compensation is not an unrelated trade or business. Turbo tax military Example 1. Turbo tax military 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. Turbo tax military Example 2. Turbo tax military A volunteer fire company conducts weekly public dances. Turbo tax military 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. Turbo tax military However, because the work at the dances is performed by unpaid volunteers, the activity is not an unrelated trade or business. Turbo tax military Convenience of members. Turbo tax military   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. Turbo tax military 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. Turbo tax military Qualified sponsorship activities. Turbo tax military   Soliciting and receiving qualified sponsorship payments is not an unrelated trade or business, and the payments are not subject to unrelated business income tax. Turbo tax military Qualified sponsorship payment. Turbo tax military   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. Turbo tax military “Use or acknowledgment” does not include advertising the sponsor's products or services. Turbo tax military The organization's activities include all its activities, whether or not related to its exempt purposes. Turbo tax military   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. Turbo tax military   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. Turbo tax military Instead, providing these goods or services is treated as a separate transaction in determining whether the organization has unrelated business income from the event. Turbo tax military 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. Turbo tax military   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. Turbo tax military   If part of a payment would be a qualified sponsorship payment if paid separately, that part is treated as a separate payment. Turbo tax military 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. Turbo tax military Advertising. Turbo tax military   A payment is not a qualified sponsorship payment if, in return, the organization advertises the sponsor's products or services. Turbo tax military For information on the treatment of payments for advertising, see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Turbo tax military   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. Turbo tax military   The use of promotional logos or slogans that are an established part of the sponsor's identity is not, by itself, advertising. Turbo tax military 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. Turbo tax military Exception for contingent payments. Turbo tax military   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. Turbo tax military 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. Turbo tax military Exception for periodicals. Turbo tax military   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. Turbo tax military 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. Turbo tax military 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). Turbo tax military   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. Turbo tax military See Sales of advertising space under Examples, earlier in this chapter. Turbo tax military Also see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Turbo tax military Exception for conventions and trade shows. Turbo tax military   A payment is not a qualified sponsorship payment if it is made in connection with any qualified convention or trade show activity. Turbo tax military 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. Turbo tax military Selling donated merchandise. Turbo tax military   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. Turbo tax military 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. Turbo tax military Employee association sales. Turbo tax military   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. Turbo tax military 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. Turbo tax military Bingo games. Turbo tax military   Certain bingo games are not included in the term “unrelated trade or business. Turbo tax military ” To qualify for this exclusion, the bingo game must meet the following requirements. Turbo tax military It meets the legal definition of bingo. Turbo tax military It is legal where it is played. Turbo tax military It is played in a jurisdiction where bingo games are not regularly conducted by for-profit organizations. Turbo tax military Legal definition. Turbo tax military   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. Turbo tax military   A wagering game that does not meet the legal definition of bingo does not qualify for the exclusion, regardless of its name. Turbo tax military 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. Turbo tax military Legal where played. Turbo tax military   This exclusion applies only if bingo is legal under the laws of the jurisdiction where it is conducted. Turbo tax military 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. Turbo tax military No for-profit games where played. Turbo tax military   This exclusion applies only if for-profit organizations cannot regularly conduct bingo games in any part of the same jurisdiction. Turbo tax military Jurisdiction is normally the entire state; however, in certain situations, local jurisdiction will control. Turbo tax military Example. Turbo tax military 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. Turbo tax military In addition, for-profit organizations are permitted to conduct bingo games in city S, a resort community located in county R. Turbo tax military Several for-profit organizations conduct nightly games. Turbo tax military Y conducts weekly bingo games in city S, while X conducts weekly games in county R. Turbo tax military Since state law confines the for-profit organizations to city S, local jurisdiction controls. Turbo tax military Y's bingo games conducted in city S are an unrelated trade or business. Turbo tax military However, X's bingo games conducted in county R outside of city S are not an unrelated trade or business. Turbo tax military Gambling activities other than bingo. Turbo tax military   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. Turbo tax military Pole rentals. Turbo tax military   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). Turbo tax military 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. Turbo tax military For this purpose, the term rental includes any sale of the right to use the pole (or other structure). Turbo tax military Distribution of low cost articles. Turbo tax military   The term unrelated trade or business does not include activities relating to the distribution of low cost articles incidental to soliciting charitable contributions. Turbo tax military This applies to organizations described in section 501 that are eligible to receive charitable contributions. Turbo tax military   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. Turbo tax military   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. Turbo tax military The maximum cost of a low cost article is $9. Turbo tax military 70 for 2011. Turbo tax military The cost of an article is the cost to the organization that distributes the item or on whose behalf it is distributed. Turbo tax military Exchange or rental of member lists. Turbo tax military   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. Turbo tax military Hospital services. Turbo tax military   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. Turbo tax military This exclusion applies only to services described in section 501(e)(1)(A). Turbo tax military Public entertainment activity. Turbo tax military   An unrelated trade or business does not include a qualified public entertainment activity. Turbo tax military 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. Turbo tax military   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. Turbo tax military   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. Turbo tax military Its conducting qualified public entertainment activities will not affect determination of its exempt status. Turbo tax military Convention or trade show activity. Turbo tax military   An unrelated trade or business does not include qualified convention or trade show activities conducted at a convention, annual meeting, or trade show. Turbo tax military   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. Turbo tax military   For these purposes, a qualifying organization is one described in section 501(c)(3), 501(c)(4), 501(c)(5), or 501(c)(6). Turbo tax military The organization must regularly conduct, as one of its substantial exempt purposes, a qualified convention or trade show activity. Turbo tax military   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. Turbo tax military 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. Turbo tax military    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. Turbo tax military The trade show itself must be a qualified convention and trade show activity. Turbo tax military 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. Turbo tax military 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. Turbo tax military Prev  Up  Next   Home   More Online Publications