Issue
As we head into Summer, we are getting numerous questions about whether summer camps might produce unrelated business income. With the NFL draft just wrapping up, we thought we’d give you a “twist” on that theme.
Situation
Saltwater Christian College (SCC), a public charity under I.R.C. section 501(c)(3) (and I.R.C. section 170(b)(1)(A)(ii)), has the opportunity to host an NFL team’s training camp on their campus utilizing the dorms, cafeteria, locker rooms, and athletic fields. SCC has agreed to provide all field maintenance and facility cleaning using their staff. SCC uses a third-party food service provider.
The CFO calls us to ask about potential UBIT issues. We answer that the rental payments should be exempt from UBIT, but the fair market value of these services (cleaning, maintenance, etc.) would result in unrelated business income. Also, if SCC charges for parking when fans come to the workouts, the parking fees could be UBIT – unless run by volunteers or it could be deemed “not regularly carried on”.
Rules
From The Thirteenth Report of the ACT (2014):
Section 1.512(a)-1(c) of the Income Tax Regulations provides that where facilities are used both to carry on exempt activities and to conduct unrelated trade or business activities, expenses, depreciation and similar items attributable to such facilities . . . shall be allocated between the two uses on a reasonable basis. It further provides that the portion of any such item so allocated to the unrelated trade or business is proximately and primarily related to that business activity, and shall be allowable as a deduction in computing unrelated business taxable income in the manner and to the extent permitted by Section 162, Section 167, or other relevant provisions of the Code.
Section 1.513-1(d)(4)(iii) of the Income Tax Regulations provides that certain dual use assets and facilities may be employed in both related and unrelated businesses. The gross income from the use of the asset in an unrelated business is unrelated business income.
Revenue Ruling 80-298, 1980-2 CB 197, provides that a university leasing its stadium to a professional football team and furnishing grounds and playing field maintenance, dressing room linens, and stadium dressing rooms was furnishing substantial services for the convenience of the lessee. The provision of such substantial services for the convenience of the lessee go beyond those usually rendered in connection with the rental of space for occupancy only. Rev. 80-298 concludes that the income derived from the university’s leasing of its stadium is not excluded from unrelated business taxable income as rent from real property under Section 512(b)(3) of the Code.
Bottom Line
As we have stated before, UBIT rules can be tricky – if not inconsistent! But kudos to any school who might attract an NFL team to come for training camp. It makes sense to consult with your qualified, knowledgeable tax advocates in order to “get it right”.
Specific questions? Email Dave Moja.
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.