Certain organizations are exempt from federal income tax. However, pursuant to § 511 of the Internal Revenue Code (IRC), when an exempt organization conducts “unrelated trade or business,”1 the resulting income is nonetheless taxable.
Tax exempt status confers a big advantage on an organization. With tax exempt status, an organization can conduct its activities and produce income without paying any income tax. The law of Unrelated Business Taxable Income (UBTI) represents a significant limitation to the tax exemptions an organization may enjoy. However, this is an area of law that is complicated to navigate. This primer will help you understand the law of UBTI.
 I.R.C. § 513(a) (“The term “unrelated trade or business” means, in the case of any organization subject to the tax imposed by section 511, any trade or business the conduct of which is not substantially related… to the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501.”).