Troas Bible College (TBC) a tax-exempt private college, runs a Laundromat in the basement of Jenny Murphy Hall, a women’s dormitory.  The coin-operated washing machines and dryers are used by resident students to wash linens, clothing, etc.  Do the revenues from the Laundromat constitute unrelated business income? What if the Laundromat is open to the general public for their use as well as use by students?

Let’s start with the student use and answer “No”. If there is use by the general public – beyond the obvious security risks (and that’s an “Enterprise Risk Management” (ERM) discussion) – potential unrelated business income issues would generally depend upon the percentage of public use.


From IRS Publication 598:

Convenience of members.  A trade or business conducted by a 501(c)(3) organization or by a governmental college or university primarily for the convenience of its members, students, patients, officers, or employees is not an unrelated trade or business. (Underline added for emphasis.)

The laundry is clearly for the convenience of TBC’s students.

Okay, but let’s act like attorneys for just a minute.  See that word “primarily”?  What do you think that means?  Well, in the context of the political 501(c)(4) “stuff” we’ve been hearing a lot about, attorneys are defining 50.1% or greater to be commensurate with “primarily”.  (Personally, I would have thought it would have been a higher percentage.)  And, by default, the IRS – in their “streamlined treatment” of 501(c)(4) applications in 2013 – technically defined “primarily” as 60% or more (political activities could not constitute more than 40% of the social welfare organization’s activities). But, in those instances, we are drawing from other areas of the law.

So, would Calvary College be safe (in the UBIT sense) in operating a laundry facility where 39% of revenues came from the non-student public?  Hmmm. I would suggest that the “public” limit would be closer to 15%, based upon other UBIT provisions in the Code. And, if TBC actively advertised the laundry to the public and/or competed with for-profit, local laundries in other ways, the IRS might deem the income from the general public to be unrelated business income and subject to tax. Note that TBC could deduct direct and allocable expenses against this income when the filed Form 990-T each year.

Bottom Line

Unrelated business income activities are complicated and may require expert analysis. You should always consult with a tax professional if you are considering activity of this kind. He or she can walk you through the regulations and help you determine the course of action that is most beneficial to your organization — and help ensure you’re complying with the spirit of the law.

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.