"Frederick Jorden" <knowtax[at]bigfoot.com> wrote:

- quote -

First of all the case does not address it as rent income. The
word "rent" never even appears in the case. Regarding the
field house the court states "During the taxable year in issue,
it was also used for activities and events unrelated to its
exempt function such as commercial shows and public
skating." Short-term (a day to a few days) rentals are
not viewed as rent in the same manner as long-term real
estate rentals. (Compare tax treatment of hotels that
"rent:" by the day vs. apartments that are by the month.)

You state that were not the promoter. Probably true, but
it is still likely that they provided substantial services to
assist in the event. I'm involved in a tax-exempt group that
occasionally allows other groups to use our facility for a fee.
If someone rents our facility for the day, we don't just give
them a key a say "lock up and turn out the lights when you're
through." We have one or more staff there to help them set
up, help them with the lighting, ushering, locking up, cleaning
up afterward and any other unforseen facility problems that
might arise during their event. While the published facts of
the RPI case don't go into much detail, the fact that the
court describes them as "using" it for unrelated events and
never mentions "renting" to others, makes it likely that there
were services involved. Short-term rentals with services
provided are generally considered to be a trade or business
and not a rental operation. Short-term rentals are not
covered by the UBTI exclusion. Long-term rentals that
don't provide those services are.

Brian Bivona, CPA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Brian wrote:
- quote -


- quote -


- quote -

No the issue was the rent charged to the ice show and circus
for dates at the Institutes field house which was also used
for intercollegiate hockey.

They did not act as the promoter nor production company for
the other activity. How is rent for an office different than
rent for dates at the field house?

--
Frederick E. Jorden http://Tax-Accounting-Payroll.com
7825 Midlothian Tpk - 207 Richmond, VA 23235-5247
EMAIL knowtax[at]bigfoot.com
(804) 320-6210 FAX (804) 320-6211

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Frederick Jorden" <knowtax[at]bigfoot.com> wrote:
- quote -

Frederick Jorden wrote:

- quote -

I don't see how the RPI case would apply to that. I assume
you're talking about Rensselaer Polytechnic Institute, 84-1
USTC ¶9397 (CA-2, 1984), aff'g 79 TC 967 (1982). In that
case Rensselaer Polytechnic Institute (RPI) operated a field
house for both taxable and exempt purposes. Their taxable
purpose was holding commercial shows. There was no rental
income at issue. The only issue addressed by the court in
that case was the method to be used to allocate indirect
expenses between the exempt and unrelated activities.

If the CPA firm is renting space on a regular basis, it
should qualify for exclusion under 512(b)(3), as long as it
is not debt- financed.

Brian Bivona, CPA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Larry Mitchell, E.A. wrote:

- quote -

It looks like the answer is no, it's not, unless the
property was purchased and is still subject to a loan, in
which case part would be considered UBTI.

It's probably more complicated than that, but that's my
off-the-top-of-the-head recollection.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Larry Mitchell, E.A. wrote:
- quote -

According to the RPI case it would not be.

--
Frederick E. Jorden http://Tax-Accounting-Payroll.com
7825 Midlothian Tpk - 207 Richmond, VA 23235-5247
EMAIL knowtax[at]bigfoot.com
(804) 320-6210 FAX (804) 320-6211

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Stuart Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

I understood that you were looking at a (c)(2) because you
felt that the income would be UBTI for a (c)(3). I was only
addressing that in most cases rent is not considered UBTI
for a 501(c)(3). You're right that if the income is debt-
financed it could potentially be a problem. While most
investment income is automatically exempt from UBTI, a
second category of income called unrelated debt-financed
income (including income from interest and dividends) can be
partially taxable if it is debt-financed. The taxable
portion is based upon a debt-to-basis ratio.

I hadn't realized that you were talking about debt- financed
property. I was addressing the basic premise of the
treatment of real estate rent as UBTI (which it is not), but
pretty much any debt-financed investment income will be
partially taxable.

I haven't had occasion to look at the issue of the exempt
purpose of a (c)(2) and if that would solve the "unrelated"
problem if it is debt-financed.

Brian Bivona

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Larry Mitchell, E.A." <larryamitchell[at]hotmail.com> wrote in
- quote -

I`t should be exempt. There is one caveat though. While most
investment income is automatically exempt from UBTI, a
second category of income called unrelated debt-financed
income (which also includes income from interest and dividends)
can be partially taxable if it is debt-financed. The taxable portion
is based upon a debt-to-basis ratio. If there is no building debt
then the rent should be completely exempt.

Brian Bivona

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Brian wrote:

- quote -

I'm concerned about 512(b)(4), which includes in UBTI rent
to the extent the property is subject to acquisition debt.

And remember, I'm not talking about a 501(c)(3) but a
501(c)(2) organization.

At the end of the day I don't think I'm going to worry about
it. They will be able to justify that any rental received
is for the exempt purpose of the 501(c)(3) that the
501(c)(2) is holding the property for, so it should be fine.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Brian" <bpbiv[at]yahoo.com> wrote:

- quote -

If a YMCA rents part of its extra space to a CPA, is the
rent exempt under 512(b)(3) or not?

LAM

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Stuart Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

The cite I should have given was 512(b)(3). Section 512
provides the definition of UBTI and 512(b) provides the
exceptions to UBTI. In 512(b)(1) it excludes interest and
dividends, in 512(b)(2) it excludes royalties and in section
512(b)(3) it excludes rent on real property (as long as it
isn't mostly personal property, and is not based on the net
income of the tenant.) These exclusions are there without
regard to the exempt purpose of the 501(c)(3) entity.

There would be no reason to specifically exempt rent that is
*related* to the exempt purpose from UBTI, as any income
*related* to the exempt purpose is, by definition, not
*unrelated* business income.

Brian Bivona, CPA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Brian wrote:

- quote -

My reading of the statute is that rent is exempt from UBTI
if it is related to an exempt purpose of the organization.

For a 501(c)(2) the concept of its exempt purpose eludes me.
I could find nothing in the statute or regulations to
address the issue. But taking the words of the statute
literally, a 501(c)(3) could avoid UBTI by transferring its
property producing unrelated business income to a 501(c)(2)
in trust for the (c)(3), and thus convert UBTI to non-taxed
income.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

- quote -

I believe that under section 512(b)(4) the rent would be
exempt from the UBTI, even if unrelated to the exempt
purpose. Am I missing something here?

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

MTW wrote:
- quote -

You're right, of course. But that isn't the problem or
the point.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Stuart Bronstein wrote:

- quote -

I don't know about the UBI issue. But, as I recall, a
501(c)(2) organization (that's a TWO at the end) is NOT
empowered to accept deductible contributions.

MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Ed Zollars, CPA wrote:
- quote -

Actually I'm thinking of a different question - unrelated
business income.

In particular I'm thinking about an organization set up
under section 501(c)(2), the the exempt (and sole) purpose
of which is to hold investment property for other
nonprofits, and to manage it. If a 501(c)(3) owns real
property and rents some of it out unrelated to its exempt
purpose, the rent received is unrelated business income.

But if it sets up a (c)(2) to hold its property, making it
productive is the exempt purpose of the organization. So is
that rent still ubi or is it not?

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Stuart Bronstein wrote:

- quote -

Under what code section would that qualify? <g
I suspect that their official exempt function is to fund
other qualified charities, not to sell stuff. Converting
things into money is simply not, in and of itself, an exempt
activity. It only becomes exempt when associated with OTHER
qualifying activities.

MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Stuart Bronstein wrote:

- quote -

Doesn't work--and, as I noted in my reply to Mike's post, it
generally isn't relevant since *most* items donated to a
thrift store are worth less than their basis to the donor.

The IRC is pretty clear and the cases have backed it up--if
you give tangible personal property to a charity and you
expect the organization to sell it, you are limited to
basis.

That's because the thrift store itself is not the "exempt
purpose"--rather, it is a fund raising arm of the charity to
enable it to undertake its exempt purpose. Now while I
suppose there might be a "Goodwill Industries" argument (the
donated things are used in a workshop to be restored and
then sold), that would seem to argue for a lower value for
the donated goods--if it needed significant restoration (so
the principal purpose was to give training) then arguably it
is in significantly less than great condition <grin> .

However, for most charities the thrift store is purely a
fund raising arm--used goods are donated to the charity then
sold "as is" to the public to raise funds to do what the
charity is set up to do.

--
Ed Zollars, CPA
Phoenix, Arizona

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

MTW wrote:
- quote -

But what if that *is* the exempt purpose of the
thrift store?

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

MTW wrote:

- quote -

Agreed. Section 170(e)(1)(B) would serve to limit your
deduction to the lower of basis or fair market value for
tangible personal property (which is what a sofa sounds like
to me <grin> ) if cannot show that either the charity
actually used the property *or* it would have been
reasonable to assume they would do so. Generally, if you
give it to the thrift shop, the assumption is they are going
to sell it unless you came to an agreement that what you
were donating was to be used in the charity (say a cash
register that would be used in the store).

Normally that provision isn't a problem for thrift shop
donations because the property donated isn't appreciated
property--so it would have been sold at a loss. But if you
do give appreciated property, you will be restricted to
basis.

--
Ed Zollars, CPA
Phoenix, Arizona

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Seth Breidbart wrote:

- quote -

I disagree. Unless the charity retains the item and USES it
in their exempt function, your deduction gets reduced to
basis. Selling at a thrift store does not qualify as such
use.

MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->