Impartial Enterprise Tax (“UBIT”) Silos Tax

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United States:

Silos for unrelated business tax (“UBIT”)

May 21, 2021

Adler & Colvin

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The Treasury Department now has the Regulations for UBIT silos.

At the end of 2017, Congress changed the UBIT rules to include the new Section 512 (a) (6). Prior to 2018, exempt organizations could offset all of their unrelated business income against all of their losses from unrelated business activities and, if applicable, only tax their entire net profit. The Silo Rules are designed to isolate any unrelated business activity and prohibit an organization from using losses from one activity against gains from another.

As is so often the case in tax law, the devil is in the details. The IRS published preliminary guidelines in Notice 2018-67 in August 2018 and proposed regulations in April 2020. For those of you who have followed the guidelines, the final regulations take over most, but not all, of the proposed regulations. For example, the unrelated activities of an exempt organization are classified with two digits NAICS codes. The regulations also provide specific rules for holdings in partnerships and limited liability companies where the income from the partnership or LLC is reported back to the exempt organization and the organization is taxable.

A more detailed analysis of the extensive regulations would go beyond the scope of this article. However, the message for our friends and clients is this: If you have unrelated business income activities or significant investments in partnerships, contact your tax return preparer or attorney now that you can be prepared on how to track and report these new regulations.

Originally published November 30, 2020

The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.

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