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For most organizations, unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption.

The IRC considers real estate sales, sales generated through a pass-through entity (such as a limited liability company), and alternative investments that generate investment income as UBTI. Passive income, such as dividends, rental income, or capital gains, are also UBTI and subject to income tax.

Let's say, for example, you own an oil drilling partnership in your IRA, and the drilling equipment owned by the partnership is leased to another company to use. This rental income would be considered UBTI.

Unrelated Business Income Tax Defined A college or university is generally deemed to have unrelated business taxable income (UBTI) when it realizes gross income from any regularly conducted trade or business that is not substantially related to its educational and other exempt purposes.

Examples of unrelated business income may include: Advertising. Bar and restaurant sales. Camping income.

The IRC considers real estate sales, sales generated through a pass-through entity (such as a limited liability company), and alternative investments that generate investment income as UBTI. Passive income, such as dividends, rental income, or capital gains, are also UBTI and subject to income tax.