Carnegie Mellon University

An exempt organization is not taxed on its income from an activity substantially related to the charitable, educational or other purpose that is the basis for the organization's exemption.  For Carnegie Mellon, higher education and research is the basis of its exemption.

If CMU carries on a trade or business that is not substantially related to its exempt purpose, the University is subject to tax on its income from the unrelated trade or business; hence unrelated business income (commonly referred to as UBI).   This income and resulting tax is reported annually to the IRS on the Form 990-T.

  • Unrelated business income - 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.
  • Trade or business - generally includes any activity carried on for the production of income from selling goods or performing services.
  • Regularly carried on - if the activities show a frequency or continuity and are pursued in a manner similar to comparable commercial activities of nonexempt organizations.
  • Not substantially related - a business activity is not substantially related to an organizations exempt purpose if it does not contribute importantly to accomplishing that purpose.  This is determined on a case by case basis and the individual facts and circumstances should be considered.

The following are examples of activities that are NOT RELATED and considered to unrelated business activities reporting on the annual Form 990-T:

  • Sale of certain products
  • Rental of personal property by various departments
  • Sale of internet connectivity
  • Public parking
  • Partnership investment generated UBI

2017 Tax Cuts and Jobs Act (Tax Reform) Changes to UBI

As part of Tax Reform, UBI must be calculated separately (i.e., expenses of one unrelated trade or business cannot offset income of another trade or business) starting in fiscal year 2019 (July 1, 2018 – June 30, 2019). This change means that all profitable UBI activities will generate a tax liability, which will be taxed at the rate of 21 percent. It is very important that anyone generating UBI should account for all expenses related to the UBI to reduce any potential liability. For allowable deductions to qualify in computing UBTI, the expenses, deprecation, and similar items must be allowable income tax deductions. 

If you think your department might be generating UBI or for more information on UBI, please contact Taxation or see IRS Publication 598.