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Some schools will be receiving Schedule K-1’s from partnership investments over the coming weeks and/or months.  The “Silo-ing” rules from Section 512(a)(6) come into play – beware.



Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

TBC annually receives two Schedule K-1s from partnership investments.  They expect to get these forms in the next few weeks and wonder about the potential UBIT implications – considering the “Tax Cuts and Jobs Act.”

I.R.C. Section 512(a)(6) (the “Silo-ing” provision) has not been repealed – although it should be.  This is the epitome of “unfairness” between for-profits and not-for-profit organizations.  Although we expect proposed regulations soon, the current guidance on “Silo-ing” and Schedule K-1s is included (with other “Silo-ing” guidance) in IRS Notice 2018-67.  The notice is 36 pages long and fairly technical in nature.

Ultimately, for Schedule K-1 items, Notice 2018-67 sets forth a de minimis test and a control test in order to determine whether a Schedule K-1 is from a “qualifying partnership interest”.  If your partnership investment(s) meet either test, a school/institution may treat any qualifying partnership interest as a single trade or business and may aggregate all items of its qualifying partnership interests as a single trade or business – even if each/any partnership is engaged in multiple trades or businesses.  Note that this is for “Silo-ing” purposes only.  Prior to this analysis, you must analyze each K-1 for unrelated business income (just like prior to Section 512(a)(6)).  You should note that interests held by a disqualified person, a supporting organization, or a controlled entity need to be considered in arriving at the percentages.

De minimis test: An institution holds directly no more than 2 percent of the profits interest and no more than 2 percent of the capital interest in the partnership. If there is no specific profits interest identified on Schedule K-1, the de minimis test will not be met.

Control test: An institution holds no more than 20 percent of the capital interest in and does not have control or influence over the partnership.  “Control” is based on all facts and circumstances.

The notice includes more guidance in the area of partnership interests and “Silo-ing” with respect to transitional rules, unrelated debt-financed income, acquisitions of partnership interests before the date of Notice 2018-67 (August 21, 2018), etc.

This is technical stuff.  This is just a summary of the Schedule K-1 implications of Notice 2018-67.  Institutions should very carefully study the notice and consult closely with your tax advisor.  And, probably about the time you’ve done all that, proposed regulations will be issued and may change everything. Alas…



From IRS Notice 2018-67:

“The administrative burden related to owning partnership interests would be heightened by the difficulty of obtaining sufficient information regarding the trade or business activities of lower-tier partnerships. Accordingly, as a matter of administrative convenience, the Treasury Department and the IRS intend to propose regulations treating certain activities in the nature of an investment (“investment activities”) of an exempt organization as one trade or business for purposes of § 512(a)(6)(A) in order to permit exempt organizations to aggregate gross income and directly connected deductions from such “investment activities.” The Treasury Department and the IRS expect that treating these “investment activities” as one trade or business for this purpose will reduce the reporting and administrative burden on organizations required to comply with § 512(a)(6) and will also reduce the burden the IRS may experience in implementing and enforcing § 512(a)(6).”



  • If your institution receives Schedule K-1’s from partnership interests, you should carefully analyze the items of income and expense for unrelated business income.
  • IRS Notice 2018-67 provides the current guidance on “Silo-ing,” including specific rules on reporting items from Schedule K-1.
  • Each Schedule K-1 must be analyzed for overall unrelated business income prior to the analysis with respect to “Silo-ing.”
  • Please tread carefully in this arena and work closely with a qualified tax advisor.


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.

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