Tax Compliance & Planning (TCP) Cheat Sheet

Basic Strategies & Income Types

Tax Strategies

• Defer Taxable Income: Postpone recognition to a later tax year (leverages the time value of money).
• Accelerate Tax Deductions: Take deductions currently to immediately reduce liability.

Net Investment Income Tax (NIIT)

High-income individuals are subject to a 3.8% Net Investment Income Tax on the lesser of:

• Net Investment Income (NII): Interest, dividends, royalties, capital gains, net rental income, and non-material participation passive business income; OR
• The excess of Modified Adjusted Gross Income (MAGI) over statutory thresholds:
  • $250,000 for Married Filing Jointly (or Qualifying Surviving Spouse)
  • $200,000 for Single or Head of Household
  • $125,000 for Married Filing Separately

International Taxation for Individuals: Exclusions & Residency

Foreign Earned Income Exclusion (FEIE): Qualifying U.S. citizens working abroad can elect to exclude foreign-earned income up to the Statutory Annual Indexed Limitation by satisfying either:

1. Bona Fide Residence Test: Resident of a foreign country for an uninterrupted period covering an entire calendar tax year.
2. Physical Presence Test: Physically present in a foreign country for at least 330 full days during any 12-consecutive-month period.

Substantial Presence Test (Inbound Nonresident Taxation): Nonresident aliens are taxed on worldwide income as U.S. tax residents if they meet the Substantial Presence Test:

Requirement: Taxpayer must also be physically present in the U.S. for at least 31 days during the current year.

Income Categories

Comprehensive Individual Loss Limitations

Losses from flow-through entities are applied sequentially against these four limitations. All four limitations (Tax Basis, At-Risk, Passive Activity, and Excess Business Loss) are calculated and applied at the individual taxpayer (partner or shareholder) level, rather than at the entity level.

Rental Real Estate Active Participation Exception

• Taxpayers can deduct up to $25,000 of rental real estate loss if the owner actively participates and owns at least 10%.
• The $25,000 allowance starts phasing out when the taxpayer's MAGI exceeds $100,000 and is fully eliminated when MAGI exceeds $150,000.

Real Estate Professional Exception

Rental real estate activities are treated as active trades or businesses (exempt from PAL limitations) if:

• More than 50% of the taxpayer's personal services are performed in real property trades or businesses; AND
• Taxpayer performs more than 750 hours of service in real property trades or businesses during the tax year; AND
• Taxpayer materially participates in each rental real estate activity.

Executive & Equity Compensation Planning

Comprehensive tax comparison across all statutory and nonstatutory equity compensation vehicles.

Statutory Plan Qualification Rules

• Incentive Stock Option Limits: Max $100,000 of ISOs first exercisable in any calendar year. Strike price ≥ FMV at grant. Employee cannot own > 10% of voting power (unless strike ≥ 110% FMV and 5-yr exercise limit).
• Employee Stock Purchase Plan Limits: Strike price cannot be less than 85% of lesser of FMV at grant or FMV at exercise. Max $25,000 FMV of stock acquired per calendar year.
• Section 83(b) Election Rules: Must be filed with the IRS within 30 days of property grant. Converts all future appreciation into LTCG. Risk: If stock is subsequently forfeited, no deduction or loss is allowed for taxes paid.

Alternative Minimum Tax (AMT)

A separate tax system ensuring high-income individuals pay a baseline minimum tax. It adds back certain preferences and adjusts regular taxable income.

Gift Taxation & Unified Transfer Tax

The federal gift tax is paid by the donor. It operates under a unified transfer tax system covering both lifetime gifts and estate transfers.

Exclusions & Thresholds

Unlimited Exclusions (No Gift Tax Triggered)

• Payments made directly to an educational institution for tuition (not room and board).
• Payments made directly to a medical provider for healthcare.
• Transfers to a spouse (marital deduction).
• Transfers to qualified charities.

Basis of Gifted Property (The Dual-Basis Rule)

Normally, the recipient takes the donor's carryover basis. However, to prevent taxpayers from transferring tax losses to family members, the dual-basis rule kicks in if the property has lost value before it was gifted.

Imputed Interest on Below-Market Loans

Under the below-market loan rules, when a lender makes a loan at an interest rate below the Applicable Federal Rate (AFR), the forgone interest is imputed: it is treated as a taxable gift from the lender to the borrower, and as taxable interest income retransferred from the borrower back to the lender.

Form 706 Gross Estate & Alternate Valuation Date

• Gross Estate Inclusions: Worldwide FMV of all assets owned or controlled at death, including:
  • All property owned directly at death.
  • Revocable transfers and retained life estates.
  • 50% of qualifying spousal joint tenancy property.
  • Life insurance proceeds if the decedent possessed incidents of ownership or transferred the policy within 3 years of death.
• Alternate Valuation Date (AVD): Executor can elect to value all estate assets 6 months after death (or date of distribution/sale, if earlier).
  Dual Reduction Rule: Can ONLY be elected if it decreases both the total Gross Estate value AND the total estate tax liability.

Gift Tax Present Interest Rule & Crummey Trusts (Form 709)

• Present Interest Requirement: The statutory annual gift exclusion applies only to gifts of a present interest (immediate possession/enjoyment). Gifts of future interests (trust accumulations, remainder interests) are fully subject to gift tax reporting on Form 709.
• Crummey Trust Powers: Adding a Crummey power gives trust beneficiaries a limited window (e.g., 30–60 days) to withdraw annual trust contributions, converting what would be a future interest into a qualifying present interest eligible for the annual gift exclusion.
• Generation-Skipping Transfer Tax (GSTT): Imposes a flat 40% tax on transfers made to "skip persons" (beneficiaries ≥ 2 generations below donor, e.g., grandchildren), assessed in addition to regular gift or estate tax.

Personal Financial Planning: Retirement & Education

Backdoor Roth IRA Mechanics & Pro-Rata Aggregation Rule

High-income taxpayers who exceed Roth IRA income phaseouts contribute non-deductible funds to a Traditional IRA and convert to a Roth IRA. Under the pro-rata aggregation rule, the IRS treats all Traditional, SEP, and SIMPLE IRAs as a single aggregate pool on December 31:

Employer-Sponsored & Self-Employed Retirement Plans Summary

Required Minimum Distributions (RMDs, SECURE 2.0 Act)

• Mandatory Starting Age: Age 73 for those born 1951–1959, rising to Age 75 for those born in 1960 or later (or retirement if later and not a > 5% owner of a workplace plan; Roth IRAs and Roth 401(k)s are exempt). First RMD may be delayed to April 1 of the following year; subsequent RMDs are due by December 31.
• Excise Penalty: 25% excise tax on the shortfall (reducible to 10% if corrected timely within 2 year).

Annuities & Life Insurance Risk Mitigation

• Annuities: Earnings grow tax-deferred. Mitigates longevity risk. Distributions represent a pro-rata mix of return of capital (nontaxable) and earnings (taxable).
• Life Insurance: Premiums are nondeductible; death benefit proceeds are generally income-tax-free. Frequently utilized to provide liquidity for estate taxes.

Comprehensive Education Savings Vehicles Comparison

Estate Considerations (Beneficiaries)

Beneficiary designations on retirement accounts and life insurance policies supersede instructions in a will. Inherited assets receive a "stepped-up" basis to FMV at the date of death.

Other Individual Tax Topics

Kiddie Tax

Prevents parents from shifting investment income to children. A dependent child's standard deduction is limited to the greater of:

Net unearned income in excess of $2,700 is taxed at the parent's marginal rate.

Healthcare Savings Accounts

Estimated Tax Payments & Safe Harbors

Taxpayers must make quarterly prepayments if they expect to owe $1,000 or more. Safe harbor requires the lesser of:

• 90% of the Current Year (CY) tax liability.
• 100% of the Prior Year (PY) tax liability (or 110% if PY AGI was > $150,000).

Charitable Contributions & AGI Limits

Non-Itemizer Above-the-Line Cash Deduction

• $1,000 Cap: Maximum cash deduction for Single and Married Filing Separately taxpayers taking the standard deduction.
• $2,000 Cap: Maximum cash deduction for Married Filing Jointly taxpayers taking the standard deduction.
• Qualifying Donations: Must be cash paid directly to qualified public charities (contributions to Donor-Advised Funds and private foundations do not qualify).

Itemizer Deductions & 0.5% AGI Floor

Taxpayers who itemize on Schedule A are subject to a 0.5% AGI deduction floor across total charitable giving. Only contributions in excess of 0.5% of AGI are deductible.

AGI Ceilings for Itemized Contributions

After applying the 0.5% floor, total annual deductions are capped at the following AGI percentage ceilings:

Carryover Rules & Benefit Caps

• 5-Year Carryover: Unused excess contributions above the AGI ceilings can be carried forward for up to 5 consecutive tax years (subject to the 0.5% floor in carryover years).
• 35% High-Income Cap: Taxpayers in the 37% top marginal tax bracket have itemized charitable deduction tax savings capped at a maximum 35% benefit rate.

Valuation of Noncash Property

Risk Management & Investment Analysis

Risk Mitigation Strategies

Types of Risk

• Nonsystematic (Diversifiable): Unique to a certain firm/industry; can be mitigated by diversifying investments.
• Systematic (Market): Affects the entire market (e.g., inflation, interest rates); cannot be diversified away, but can be hedged via derivatives.

Investment Formulas

The One Big Beautiful Bill Act (OBBBA)

Key Individual Provisions (2026+)

Key Business Provisions (2026+)

• Bonus Depreciation: Permanently restored to 100% for qualifying property.
• Research & Experimentation (R&E): Immediate expensing for domestic R&E costs.
• Executive Compensation: The $1M limit on deductible compensation is expanded to all members of a covered corporation's controlled group.

C Corporation Formation

Section 351 Tax-Free Formation

No gain or loss is recognized upon formation if the contributing shareholders own at least 80% of the corporation immediately after the transfer. However, gain is recognized if "boot" (cash) is received, or if liabilities assumed by the corp exceed the shareholder's basis.

Shareholder's Basis in Stock Received:

Corporate Distributions & Liquidation

Nonliquidating Corporate Distributions

Distributions follow a strict order of taxation based on Earnings and Profits (E&P):

Property Distributions: If a C Corp distributes appreciated property, it recognizes a gain as if the property was sold at FMV. It cannot recognize a loss on depreciated property.

Taxable Complete Liquidation vs. Tax-Free 80% Subsidiary Liquidation

Corporate Reorganizations

Corporate reorganizations allow corporations and their shareholders to restructure or combine entities without immediate tax recognition, provided the transaction meets strict statutory and judicial requirements.

Judicial Requirements for Tax-Free Treatment

• Continuity of Proprietary Interest (COI): Target shareholders must receive significant equity (generally ≥ 40% of total consideration) in the acquiring corporation.
• Continuity of Business Enterprise (COBE): Acquiring entity must continue Target's historic business or use a significant portion of Target's historic assets.
• Valid Business Purpose: Restructuring must have a substantial non-tax economic justification.
• Step-Transaction Doctrine: Form of formally separate steps will be integrated into a single transaction to determine true tax substance.

Summary Comparison of Reorganization Types (A through F)

Tax Consequences & Basis Calculations

Corporate Losses & Utilization

Section 382 Limitation (Change in Ownership)

If there is an ownership change of more than 50% by 5% shareholders over a 3-year testing period, the ability to use existing NOL carryforwards is severely limited annually.

Corporate Compliance: Penalty Taxes, Estimated Taxes & Shareholder Loans

Corporate Penalty Taxes (AET & PHC)

Penalty taxes are imposed at a flat 20% rate (in addition to the standard 21% corporate income tax) to penalize improper retention of corporate earnings or passive income sheltering.

Corporate Estimated Tax Payments (Form 1120-W)

A C corporation must make quarterly estimated tax payments if its estimated annual tax liability is expected to be $500 or more.

Corporate / Shareholder Below-Market Loans

International Corporate Tax Concepts

Focuses on general concepts of income sourcing and structure, rather than specific foreign treaties.

Sourcing of Income

Foreign Branch vs. Foreign Subsidiary

• Foreign Branch: An unincorporated extension of the domestic corporation. Income is taxed immediately in the U.S. as earned, and the entity claims a Foreign Tax Credit (FTC) for host country taxes.
• Foreign Subsidiary: A separate legal entity incorporated abroad. Income is generally deferred from U.S. taxation until repatriated, unless caught by anti-deferral rules (like Subpart F).

Permanent Establishment (PE)

A fixed place of business (e.g., office, factory) in a foreign country through which business is carried on. Creating a PE generally subjects the entity to corporate income tax in that foreign jurisdiction.

Controlled Foreign Corporation (CFC)

A foreign corporation where > 50% of voting power or value is owned by U.S. shareholders (who each own 10%+). Subject to Subpart F rules, which force U.S. shareholders to currently recognize certain passive or highly mobile foreign income, even if not distributed as a dividend.

Foreign Tax Credit (FTC) Limitation Formula & Separate Baskets

To prevent taxpayers from using foreign tax credits to offset U.S. tax on domestic-source income, the FTC is limited to the lesser of actual foreign taxes paid or the statutory limitation:

Foreign Tax Credit Limitation

• Mandatory Separate Baskets: The limitation must be calculated separately for:
  1. Passive Category Income: Dividends, interest, royalties, annuities, capital gains.
  2. General Category Income: Active foreign trade or business operating income.
  3. Foreign Branch Income: Operational income derived directly through foreign branch operations.
• Carryover Rules: Excess FTC can be carried back 1 year and carried forward 10 years.
• Participation Exemption (100% Foreign DRD): Domestic C corporations owning ≥ 10% of a foreign subsidiary can claim a 100% Dividends Received Deduction for the foreign-source portion of dividends repatriated to the U.S.

Consolidated Tax Returns

An affiliated group can elect to file a single, consolidated federal income tax return. Once elected, this filing status is generally binding for all future years.

The 80% Affiliated Group Test

To qualify, a parent corporation must directly own ≥80% of the voting power AND ≥80% of the total value of the stock of at least one includible subsidiary.

• Losses of one subsidiary can offset the profits of another.
• Brother-sister corporations (two separate corporations owned by the same individual shareholder) do not qualify as an affiliated group.

Consolidated Taxable Income Computation

Instead of a single calculation, consolidated income is determined through a 5-step adjustment process:

State & Local Taxation (SALT) for Corporations

Nexus & Jurisdiction

Nexus: The minimum degree of connection between a business and a state that subjects the business to the state's tax jurisdiction. Can be physical (property, employees) or economic (exceeding state-defined sales thresholds).

Allocation vs. Apportionment

Standard Apportionment Formula

Historically equally weighted, but many states now heavily or solely weight the Sales Factor.

Equal-Weighted Three-Factor Apportionment

Public Law 86-272: Federal Statutory Nexus Immunity

Public Law 86-272 prevents a state from imposing a net income tax on an out-of-state corporation if the corporation's only business activity within the state meets all three statutory conditions:

Protected Activities (Immune from Net Income Tax)

• Soliciting orders for sales of tangible personal property only.
• Orders sent outside the state for approval or rejection.
• Orders filled by shipment from a point outside the state.
• Carrying promotional samples without sales from stock.

Unprotected Activities (Triggers Income Tax Nexus)

• Making sales of services or real/intangible property.
• Maintaining an office, warehouse, or retail location in state.
• Performing post-sale repair, warranty, or installation services.
• Collecting delinquent accounts or investigating credit.
• Consigning inventory to third parties in the state.

Note: P.L. 86-272 protects strictly against Net Income Taxes. It does NOT protect against Sales/Use taxes, Gross Receipts taxes (e.g., Washington B&O, Ohio CAT), or franchise net worth taxes.

Partnership Formation

Contribution of Property

Generally tax-free for both the partner and the partnership. Pre-contribution built-in gains/losses on property are allocated to the contributing partner upon a subsequent sale by the partnership.

• Contribution of Services: A partner must recognize ordinary income equal to the FMV of the partnership interest received in exchange for services.
• Property with Excess Liability: A partner recognizes a taxable capital gain if they contribute property subject to a liability, and the portion of the liability assumed by the other partners exceeds the contributing partner's basis.

Partnership Basis & Elections

Basis Terminology

Adjustments to Outside Basis

Section 754 Optional Basis Adjustments (Transfers vs. Distributions)

Partnership Distributions & Liquidation

Nonliquidating Distributions

Generally nontaxable. Distributions reduce the partner's outside basis (cash first, then property). A gain is only recognized if cash distributed exceeds the partner's entire outside basis. Losses are never recognized.

Liquidating Distributions

Generally nontaxable. The partner's remaining outside basis (after cash) is fully allocated to the property received to zero out the partner's interest. A loss is recognized only if the distribution consists solely of cash, unrealized receivables, and inventory, and their inside basis is less than the partner's outside basis.

Multi-Property Distribution Basis Allocation

Sale of Partnership Interest, Section 751 Assets & Disguised Sales

Sale of Partnership Interest & Section 751 "Hot Assets"

When a partner sells their interest, the transaction is treated as the sale of a capital asset, except to the extent of the selling partner's share of Section 751 Assets (Unrealized Receivables and Inventory Items), which trigger ordinary income.

Definition of Section 751 Assets (Unrealized Receivables & Inventory)

• Unrealized Receivables: Rights to payment for goods or services not previously included in income (cash-basis A/R) plus §1245 and §1250 depreciation recapture potential.
• Inventory Items: Traditional inventory, raw materials, supplies, and all other non-capital/non-§1231 business assets.

Disguised Sales of Property

If a partner transfers property to a partnership and receives a related distribution of money or property within a 2-year window (before or after), the transaction is statutorily presumed to be a taxable disguised sale rather than a tax-free contribution and distribution.

S Corp Operations & Distributions

Separately Stated Items

Items not aggregated at the corporate level, passed through separately on Schedule K-1:

• Rental Real Estate: Income/loss is passive.
• Portfolio Income: Interest, dividends, and royalties.
• Net Section 1231 Gain/Loss: Evaluated at the shareholder level.
• Charitable Contributions: Subject to individual AGI limits.
• Section 179 Expense: Subject to individual limits.
• Tax-Exempt Interest: Increases stock basis (OAA) but is not taxable.

S Corporation Stock Basis Ordering

Stock basis cannot be reduced below zero. Adjustments must be calculated in this exact statutory sequence:

Direct Debt Basis & Basis Restoration Mechanics

• Direct Loans Only: Debt basis is established only by direct loans made by the shareholder to the S corporation. Guaranteeing third-party bank debt creates zero debt basis.
• Loss Utilization Sequence: Losses first reduce stock basis to $0, then reduce direct debt basis to $0. Any remaining loss is suspended indefinitely.
• Basis Restoration Rule: In subsequent profitable years, net positive adjustments first restore direct debt basis back to its original face value before any increase is made to stock basis.
• Permanent Loss on Sale: Suspended S corp losses due to lack of basis are permanently lost if the shareholder disposes of all stock (unlike passive activity losses which unlock upon a complete taxable disposition).

Accumulated Adjustments Account (AAA)

Tracks undistributed tax-paid earnings. Distributions from AAA are tax-free. AAA can go negative from losses, but a distribution cannot drop AAA below zero.

Distribution Waterfall (With Prior C Corp E&P)

If the S Corp has accumulated E&P from prior C Corp years, statutory distribution ordering follows this 4-tier waterfall:

AAA Bypass Election

An S Corp can elect to distribute C Corp AEP before AAA. This tax planning "bypass election" is utilized to strip out C Corp E&P to avoid the passive investment income tax or the termination of S status.

C-to-S Conversion Transition Taxes

When an existing C corporation elects S corporation status, the tax code imposes three potential entity-level transition taxes to prevent corporate tax avoidance.

Choice of Entity Comparison Matrix

Strategic evaluation of business entity choices across all lifecycle stages from formation to liquidation.

Character of Assets

Capital Assets

Assets held for investment or personal use (e.g., stocks, bonds, personal car, home).

Noncapital (Ordinary) Assets

• Inventory
• Accounts Receivable
• Depreciable property and real estate used in a trade or business held for one year or less.

Section 1231 Assets

Depreciable personal property and real estate used in a trade or business held for more than one year.

Net 1231 Treatment: Net gains are treated as long-term capital gains, while net losses are treated as ordinary losses. A 5-year look-back rule applies: if there is a net Section 1231 gain, it is treated as ordinary income to the extent of any unrecaptured Section 1231 losses from the previous five years.

Section 1231 Netting Hierarchy & 5-Year Lookback Rule

Depreciation Recapture

When Section 1231 assets are sold at a gain, the gain must be "recaptured" as ordinary income up to the amount of accumulated depreciation.

Cost Recovery & Depreciation

Taxpayers must recover the cost of business or income-producing property through MACRS.

MACRS Conventions

Accelerated Expensing (OBBBA Updated)

• 100% Bonus Depreciation: The OBBBA permanently restored bonus depreciation to 100%. Qualifying property (generally MACRS property with a recovery period of 20 years or less) can be fully expensed in the year it is placed in service.
• Section 179: Allows an immediate deduction of tangible personal property up to a specified limit, but it cannot create or increase a net loss.

Property Realization & Like-Kind Exchanges (§1031)

General Realization & Recognition Formulas

Section 1031 Like-Kind Exchanges (Real Property)

Applies strictly to real property used in trade or business or held for investment. No loss is ever recognized on a like-kind exchange.

Property Nonrecognition & Gain Exclusions

Principal Residence Gain Exclusion (§121)

• Exclusion Cap: Exclude up to $250,000 (Single / MFS) or $500,000 (MFJ) of capital gain on the sale of a principal residence.
• Ownership & Use Test: Must own and use the property as a principal residence for at least 2 out of the 5 years preceding the sale. (Both spouses must meet the use test for the $500,000 MFJ limit).
• Depreciation Recapture: Any depreciation claimed after May 6, 1997 (e.g., home office) is ineligible for exclusion and is taxed as Unrecaptured §1250 Gain at 25%.
• Nonqualified Use Proration: Periods of nonqualified use (e.g., rental prior to primary residence use) prorate the exclusion.

Involuntary Conversions (§1033)

• Replacement Windows: 2 years from year-end for casualty/theft; 3 years from year-end for condemned trade/business/investment real property.
• Gain Recognition: Gain is recognized only to the extent insurance/condemnation proceeds are not reinvested in qualified replacement property.

Divorce Property Settlements (§1041)

• Transfers between spouses incident to divorce are 100% tax-free (no gain or loss recognized).
• Recipient spouse takes the transferor's carryover adjusted basis and holding period.

Corporate Treasury Stock (§1032)

• Corporations recognize zero gain or loss on sales, repurchases, exchanges, or reissuances of their own capital stock.

Specific Asset Dispositions

Small Business Stock: Section 1244 Loss vs. Section 1202 QSBS

Installment Sale Formulas

Related Party Transactions

Includes family (siblings, spouses, ancestors, lineal descendants), >50% owned entities, and controlled groups.

Disallowed Losses

Losses on sales between related parties are permanently disallowed for the seller. However, the buyer can use the disallowed loss to offset a gain on a future sale to an unrelated party.

Subsequent Sale to Unrelated Party

When the buyer eventually sells the property to an unrelated party, the recognized gain or loss depends on the new sales price relative to the original relative's cost basis:

Constructive Ownership Rules

1. Stock owned by a corp/partnership/trust is treated as owned proportionately by its shareholders/ partners/beneficiaries.
2. An individual is considered to own the stock of their family members.

Related-Party Depreciable Property & Constructive Ownership Attribution

• Section 1239 Depreciable Property Rule: If property that is depreciable in the hands of the buyer is sold between related persons (e.g., an individual and their > 50% owned entity), 100% of recognized gain is recharacterized as ORDINARY INCOME.
• Family Attribution Limitation: Stock constructively owned through an entity (Rule 1) can be re-attributed. However, stock constructively owned through a family member (Rule 2) CANNOT be re-attributed to another family member.

Trusts & Estates: Income Taxation

Estates and trusts are separate income-tax-paying entities. Income is taxed at either the entity level (if retained) or the beneficiary level (if distributed), but not both.

Trust Classifications

Distributable Net Income (DNI)

DNI establishes the maximum amount of income taxed to beneficiaries and deducted by the trust. It also determines the character of the income (e.g., tax-exempt).

Trust Accounting Income (TAI) vs. Distributable Net Income (DNI)

Fiduciary Income Distribution Deduction & The 65-Day Rule

• Personal Exemptions: Simple Trust = $300; Complex Trust = $100; Estate = $600.
• 65-Day Rule: Fiduciary can elect to treat distributions made within the first 65 days of the subsequent tax year as having been paid on the final day of the prior tax year.

Tax-Exempt Organizations

Obtaining & Maintaining Tax-Exempt Status (Section 501(c)(3))

Organizations operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes. To maintain status:

• No part of net earnings may benefit private interests/shareholders.
• Substantial part of activities cannot be attempting to influence legislation (lobbying limits).
• May not directly or indirectly participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office.

Unrelated Business Income (UBI)

Income from a trade or business that is regularly carried on and not substantially related to the organization's tax-exempt purpose. Subject to Unrelated Business Income Tax (UBIT) at corporate rates.

• Statutory Exclusions from UBI (Not Subject to UBIT):
  • Passive Investment Income: Dividends, interest, annuities, and royalties.
  • Real Property Rents: Unleveraged rental income from real property (rents based on net profits are taxable).
  • Property Dispositions: Capital gains and losses from sales of non-inventory investment property.
  • Research Activities: Income derived from research conducted for government entities, colleges, or hospitals.
  • Volunteer-Run Activities: Businesses where substantially all work is performed without compensation (e.g., volunteer bake sales).
  • Member Convenience Activities: Operations conducted primarily for the convenience of members, students, or employees (e.g., university cafeterias, hospital gift shops).
  • Donated Merchandise Sales: Sale of donated items (e.g., thrift shops).
  • Qualified Entertainment: Qualified bingo games, public entertainment, conventions, and trade show activities.