26 U.S.C. § 513 : US Code - Section 513: Unrelated trade or business

Search 26 U.S.C. § 513 : US Code - Section 513: Unrelated trade or business

(a) General rule
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
(aside from the need of such organization for income or funds or
the use it makes of the profits derived) 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 (or, in the case of an organization described in
section 511(a)(2)(B), to the exercise or performance of any purpose
or function described in section 501(c)(3)), except that such term
does not include any trade or business -
(1) in which substantially all the work in carrying on such
trade or business is performed for the organization without
compensation; or
(2) which is carried on, in the case of an organization
described in section 501(c)(3) or in the case of a college or
university described in section 511(a)(2)(B), by the organization
primarily for the convenience of its members, students, patients,
officers, or employees, or, in the case of a local association of
employees described in section 501(c)(4) organized before May 27,
1969, which is the selling by the organization of items of work-
related clothes and equipment and items normally sold through
vending machines, through food dispensing facilities, or by snack
bars, for the convenience of its members at their usual places of
employment; or
(3) which is the selling of merchandise, substantially all of
which has been received by the organization as gifts or
contributions.
(b) Special rule for trusts
The term "unrelated trade or business" means, in the case of -
(1) a trust computing its unrelated business taxable income
under section 512 for purposes of section 681; or
(2) a trust described in section 401(a), or section 501(c)(17),
which is exempt from tax under section 501(a);
any trade or business regularly carried on by such trust or by a
partnership of which it is a member.
(c) Advertising, etc., activities
For purposes of this section, the term "trade or business"
includes any activity which is carried on for the production of
income from the sale of goods or the performance of services. For
purposes of the preceding sentence, an activity does not lose
identity as a trade or business merely because it is carried on
within a larger aggregate of similar activities or within a larger
complex of other endeavors which may, or may not, be related to the
exempt purposes of the organization. Where an activity carried on
for profit constitutes an unrelated trade or business, no part of
such trade or business shall be excluded from such classification
merely because it does not result in profit.
(d) Certain activities of trade shows, State fairs, etc.
(1) General rule
The term "unrelated trade or business" does not include
qualified public entertainment activities of an organization
described in paragraph (2)(C), or qualified convention and trade
show activities of an organization described in paragraph (3)(C).
(2) Qualified public entertainment activities
For purposes of this subsection -
(A) Public entertainment activity
The term "public entertainment activity" means any
entertainment or recreational activity of a kind traditionally
conducted at fairs or expositions promoting agricultural and
educational purposes, including, but not limited to, any
activity one of the purposes of which is to attract the public
to fairs or expositions or to promote the breeding of animals
or the development of products or equipment.
(B) Qualified public entertainment activity
The term "qualified public entertainment activity" means a
public entertainment activity which is conducted by a
qualifying organization described in subparagraph (C) in -
(i) conjunction with an international, national, State,
regional, or local fair or exposition,
(ii) accordance with the provisions of State law which
permit the activity to be operated or conducted solely by
such an organization, or by an agency, instrumentality, or
political subdivision of such State, or
(iii) accordance with the provisions of State law which
permit such an organization to be granted a license to
conduct not more than 20 days of such activity on payment to
the State of a lower percentage of the revenue from such
licensed activity than the State requires from organizations
not described in section 501(c)(3), (4), or (5).
(C) Qualifying organization
For purposes of this paragraph, the term "qualifying
organization" means an organization which is described in
section 501(c) (3), (4), or (5) which regularly conducts, as
one of its substantial exempt purposes, an agricultural and
educational fair or exposition.
(3) Qualified convention and trade show activities
(A) Convention and trade show activities
The term "convention and trade show activity" means any
activity of a kind traditionally conducted at conventions,
annual meetings, or trade shows, including, but not limited to,
any activity one of the purposes of which is to attract persons
in an industry generally (without regard to membership in the
sponsoring organization) as well as members of the public to
the show for the purpose of displaying industry products or to
stimulate interest in, and demand for, industry products or
services, or to educate persons engaged in the industry in the
development of new products and services or new rules and
regulations affecting the industry.
(B) Qualified convention and trade show activity
The term "qualified convention and trade show activity" means
a convention and trade show activity carried out by a
qualifying organization described in subparagraph (C) in
conjunction with an international, national, State, regional,
or local convention, annual meeting, or show conducted by an
organization described in subparagraph (C) if one of the
purposes of such organization in sponsoring the activity is the
promotion and stimulation of interest in, and demand for, the
products and services of that industry in general or to educate
persons in attendance regarding new developments or products
and services related to the exempt activities of the
organization, and the show is designed to achieve such purpose
through the character of the exhibits and the extent of the
industry products displayed.
(C) Qualifying organization
For purposes of this paragraph, the term "qualifying
organization" means an organization described in section
501(c)(3), (4), (5), or (6) which regularly conducts as one of
its substantial exempt purposes a show which stimulates
interest in, and demand for, the products of a particular
industry or segment of such industry or which educates persons
in attendance regarding new developments or products and
services related to the exempt activities of the organization.
(4) Such activities not to affect exempt status
An organization described in section 501(c) (3), (4), or (5)
shall not be considered as not entitled to the exemption allowed
under section 501(a) solely because of qualified public
entertainment activities conducted by it.
(e) Certain hospital services
In the case of a hospital described in section 170(b)(1)(A)(iii),
the term "unrelated trade or business" does not include the
furnishing of one or more of the services described in section
501(e)(1)(A) to one or more hospitals described in section
170(b)(1)(A)(iii) if -
(1) such services are furnished solely to such hospitals which
have facilities to serve not more than 100 inpatients;
(2) such services, if performed on its own behalf by the
recipient hospital, would constitute activities in exercising or
performing the purpose or function constituting the basis for its
exemption; and
(3) such services are provided at a fee or cost which does not
exceed the actual cost of providing such services, such cost
including straight line depreciation and a reasonable amount for
return on capital goods used to provide such services.
(f) Certain bingo games
(1) In general
The term "unrelated trade or business" does not include any
trade or business which consists of conducting bingo games.
(2) Bingo game defined
For purposes of paragraph (1), the term "bingo game" means any
game of bingo -
(A) of a type in which usually -
(i) the wagers are placed,
(ii) the winners are determined, and
(iii) the distribution of prizes or other property is made,
in the presence of all persons placing wagers in such game,
(B) the conducting of which is not an activity ordinarily
carried out on a commercial basis, and
(C) the conducting of which does not violate any State or
local law.
(g) Certain pole rentals
In the case of a mutual or cooperative telephone or electric
company, the term "unrelated trade or business" does not include
engaging in qualified pole rentals (as defined in section
501(c)(12)(D)).
(h) Certain distributions of low cost articles without obligation
to purchase and exchanges and rentals of member lists
(1) In general
In the case of an organization which is described in section
501 and contributions to which are deductible under paragraph (2)
or (3) of section 170(c), the term "unrelated trade or business"
does not include -
(A) activities relating to the distribution of low cost
articles if the distribution of such articles is incidental to
the solicitation of charitable contributions, or
(B) any trade or business which consists of -
(i) exchanging with another such organization names and
addresses of donors to (or members of) such organization, or
(ii) renting such names and addresses to another such
organization.
(2) Low cost article defined
For purposes of this subsection -
(A) In general
The term "low cost article" means any article which has a
cost not in excess of $5 to the organization which distributes
such item (or on whose behalf such item is distributed).
(B) Aggregation rule
If more than 1 item is distributed by or on behalf of an
organization to a single distributee in any calendar year, the
aggregate of the items so distributed in such calendar year to
such distributee shall be treated as 1 article for purposes of
subparagraph (A).
(C) Indexation of $5 amount
In the case of any taxable year beginning in a calendar year
after 1987, the $5 amount in subparagraph (A) shall be
increased by an amount equal to -
(i) $5, multiplied by
(ii) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year
begins, by substituting "calendar year 1987" for "calendar
year 1992" in subparagraph (B) thereof.
(3) Distribution which is incidental to the solicitation of
charitable contributions described
For purposes of this subsection, any distribution of low cost
articles by an organization shall be treated as a distribution
incidental to the solicitation of charitable contributions only
if -
(A) such distribution is not made at the request of the
distributee,
(B) such distribution is made without the express consent of
the distributee, and
(C) the articles so distributed are accompanied by -
(i) a request for a charitable contribution (as defined in
section 170(c)) by the distributee to such organization, and
(ii) a statement that the distributee may retain the low
cost article regardless of whether such distributee makes a
charitable contribution to such organization.
(i) Treatment of certain sponsorship payments
(1) In general
The term "unrelated trade or business" does not include the
activity of soliciting and receiving qualified sponsorship
payments.
(2) Qualified sponsorship payments
For purposes of this subsection -
(A) In general
The term "qualified sponsorship payment" means any payment
made by any person engaged in a trade or business with respect
to which there is no arrangement or expectation that such
person will receive any substantial return benefit other than
the use or acknowledgement of the name or logo (or product
lines) of such person's trade or business in connection with
the activities of the organization that receives such payment.
Such a use or acknowledgement does not include advertising such
person's products or services (including messages containing
qualitative or comparative language, price information, or
other indications of savings or value, an endorsement, or an
inducement to purchase, sell, or use such products or
services).
(B) Limitations
(i) Contingent payments
The term "qualified sponsorship payment" does not include
any payment if the amount of such payment is contingent upon
the level of attendance at one or more events, broadcast
ratings, or other factors indicating the degree of public
exposure to one or more events.
(ii) Safe harbor does not apply to periodicals and qualified
convention and trade show activities
The term "qualified sponsorship payment" does not include -

(I) any payment which entitles the payor to the use or
acknowledgement of the name or logo (or product lines) of
the payor's trade or business in regularly scheduled and
printed material published by or on behalf of the payee
organization that is not related to and primarily
distributed in connection with a specific event conducted
by the payee organization, or
(II) any payment made in connection with any qualified
convention or trade show activity (as defined in subsection
(d)(3)(B)).
(3) Allocation of portions of single payment
For purposes of this subsection, to the extent that a portion
of a payment would (if made as a separate payment) be a qualified
sponsorship payment, such portion of such payment and the other
portion of such payment shall be treated as separate payments.