Thursday, November 8, 2018
Hey Fletch … Let me get back to you on my question and your answer. I was asking about our church renting space to a counselor at below-market rates. I thought you might find this interesting; it comes from the IRS website. I believe we meet the conditions of the exclusion which are stated here, but of course the other issues are still very much in play. It says:
Charities and Non-Profits
Exclusion of Rent from Real Property from UBIT
Rental income from real property received by exempt organizations is normally excluded from unrelated business taxable income. However, rent may not fall under the exclusion in various circumstances, such as when substantial personal services are provided to lessees, if more than 50% of the rent is for the use of personal property, if the property is debt-financed income or leased to a controlled entity, or if the organization is exempt under Sections 501(c)(7), 501(c)(9) or IRC 501(c)(17).
DRF—That is a great page from the IRS. Thanks so much for this. I read it and saw lots of stipulations, issues and cases. Wow, that is complicated.
One problem may not be “today” but in five years when the church wants to build and take out a bank loan. Will that change the “debt financed income” issue in the IRS rules? Who will remember that in five years?
I’d suggest that you get a great CPA to examine it with you. Get all your paperwork in order. Double check it all. Put together a checklist of issues that may force you to pay UBIT in the future and examine that list every year.
Let me know how it turns out. This is of great interest to me.