ExpertMedium1 markMultiple Choice
CPA · Question 44 · Area II: Entity Tax Compliance
A tax-exempt university operates a coffee shop open to the public. It generates $50,000 profit. It also earns $20,000 in dividends from investments. Which amount is Unrelated Business Taxable Income (UBTI)?
A tax-exempt university operates a coffee shop open to the public. It generates $50,000 profit. It also earns $20,000 in dividends from investments. Which amount is Unrelated Business Taxable Income (UBTI)?
Answer options:
A.
$70,000
B.
$50,000
C.
$20,000
D.
$0
How to approach this question
Identify UBI: Trade or business, regularly carried on, not substantially related to exempt purpose. Coffee shop = UBI. Passive income (Dividends) = Exempt (IRC §512(b)).
Full Answer
B.$50,000✓ Correct
B
IRC §512. Income from a regularly carried on trade or business not related to the exempt purpose (coffee shop) is UBTI. Dividends are specifically excluded from UBTI under §512(b).
Common mistakes
Including passive income in UBTI.
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