Article
The complexities with unrelated taxable income for NFPs
July 24, 2023 · Authored by Colette Kamps
When a not-for-profit (NFP) organization has a question about whether a certain type of income is taxable, the most common response is “it depends” as this determination is not always straightforward. The three criteria for income to be taxable are: (1) the income is from a trade or business, (2) it’s regularly carried on, and (3) the activity that produces the income is not substantially related to the organization’s exempt purpose. Let’s explore this in a little more depth.
Slight modifications determine taxable or not
The taxability determination can be complex because slight modifications to the circumstances may make all the difference. Here are a few examples of similar situations, but with different outcomes:
| Type of organization | Income activity | Related (not taxable) | Unrelated (taxable) |
| Bar association | Sale of legal forms to members | Sale of various items | Forms are not monitored or updated |
| Museum shop | Sale of art and books | Sale of reproductions of art in the museum | Sale of scientific books in a folk-art museum shop |
| Vocational school | Sale of various handmade items | Made by students at the school | Made by others in the community |
| University bookstore | GSA | Sale of books, supplies
|
Sales of plants |
