The Compass Center a 501c3 organization provides training pr

The Compass Center, a §501(c)(3) organization, provides training programs for welfare recipients, and reports the following at the end of 2017:

Gross income from sales                      $425,000

Cost of goods sold                                 106,000

Advertising and selling expenses             26,000

Administrative expenses                      112,500

Calculate the compass Center’s UBIT under the following separate scenarios:

a. Assume that the sale of the training program products is substantially related to their exempt purpose.

b. Assume that the sale of the training program products is not substantially related to their exempt purpose.

Solution

UBIT i.e unrelated business taxable income refers to the income generated from trade or business,regularly carried on, and not substantially related to furthering the exempt purpose of the organisation.

Hence,in case a) no UBIT can be calculated as the income so generated is substantially related to their exempt purpose.

b) Calculation of UBIT is as follows:

Sales $425000

Less:Cogs $106000

Less:all expenses $138500(26000+112500)

UBIT = $180500