A tax-exempt organization, such as a university, foundation, or
pension fund, generally is not taxed on income earned from its
tax-exempt activities, but is taxed at regular corporate rates on
its unrelated business taxable income (UBTI). UBTI generally
includes income or gain from “debt-financed”
investments. If a tax-exempt organization invests in the
equity of a partnership that borrows money to make investments, its
allocable share of income or gain from the partnership's
debt-financed investments generally will be UBTI.
The Tax Cuts and Jobs Act added Section 512(a)(6) to the tax
code. Under that section, an exempt organization with more than one
unrelated trade or business must compute UBTI separately with
respect to each business, and cannot offset income from one
business with losses from another.
