A tax-exempt university operates a coffee shop open to the public. The shop generates ,000 in profit. The university also has ,000 in dividend income from its endowment. What amount is subject to Unrelated Business Income Tax (UBIT)?

Answer options:

,000 (minus ,000 specific deduction)

,000

How to approach this question

UBIT = Business Income NOT related to purpose. Passive income (Divs, Interest, Rents) is usually EXEMPT from UBIT.

Full Answer

B.,000 (minus ,000 specific deduction)✓ Correct

Unrelated Business Income (UBI) includes income from a trade or business regularly carried on that is not substantially related to the exempt purpose. Passive income like dividends is statutorily excluded from UBIT.

Common mistakes

Including passive investment income in UBIT.

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