The new Internal Revenue Code Section 512(a)(6) requires “silo-ing” of unrelated business activities.  For those institutions that receive K-1’s from partnerships, how will the silo-ing work?


Denali Christian College (DCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(i).  They are required to file Form 990 annually.

DCC’s CFO calls us to ask about how they will report income from the various line items on the Schedule K-1’s (Form 1065) that the college receives from investment partnerships.  “I’ve heard that the IRS has prescribed the use of the 6-digit NAICS codes.  Aren’t there about 1,000 of those?”

“Yes,” we answer.

“And, doesn’t it get as granular as things like “Citrus – except oranges?”

“Yes,” we answer.  “However, the IRS has – in that same notice – allotted some relief for K-1’s where DCC owns 2% or less of the capital and profits, based on an average throughout the year.  Or, where the college owns 20% or less of the capital and does not control the partnership.  There are rules for related parties, etc. where these aggregration rules won’t apply.”

“How do we figure out the average capital and profits interest percentages for the year?”

“To quote the notice, ‘When determining the exempt organization’s percentage interest in a partnership the exempt organization may rely on the Schedule K-1 it receives from the partnership.’”

“So, if they all three meet the criteria for de minimis or ‘non-control,’ we can consider all of our partnership interests to be in one ‘silo’ for purposes of 512(a)(6)?”

“According to the notice, yes.”


From IRS Notice 2018-67:

Pending issuance of proposed regulations, and pursuant to additional interim guidance provided in section 6 of this notice, exempt organizations may rely on a reasonable, good-faith interpretation of §§ 511 through 514, considering all the facts and circumstances, when determining whether an exempt organization has more than one unrelated trade or business for purposes of § 512(a)(6). A reasonable, good-faith interpretation includes using the North American Industry Classification System 6-digit codes described in section 3.03.

Interim Rule for Aggregation of Qualifying Partnership Interests under the De Minimis and Control Tests. Pending publication of proposed regulations, an exempt organization may aggregate its UBTI from its interest in a single partnership with multiple trades or businesses, including trades or businesses conducted by lower-tier partnerships, as long as the directly-held interest in the partnership meets the requirements of either the de minimis test (described in section 6.02 of this notice) or the control test (described in section 6.03 of this notice) (“qualifying partnership interest”). Additionally, under this interim rule, an exempt organization may aggregate all qualifying partnership interests and treat the aggregate group of qualifying partnership interests as comprising a single trade or business for purposes of § 512(a)(6)(A).

A partnership interest is a qualifying partnership interest that meets the requirements of the de minimis test if the exempt organization holds directly no more than 2 percent of the profits interest and no more than 2 percent of the capital interest.

A partnership interest is a qualifying partnership interest that meets the requirements of the control test if the exempt organization (i) directly holds no more than 20 percent of the capital interest; and (ii) does not have control or influence over the partnership.


  • I.R.C. Section 512(a)(6) institutes a “silo-ing” approach where separate unrelated business activities must stand alone for purposes of profit and loss.
  • The law takes effect for tax years beginning after 12/31/17.
  • IRS Notice 2018-67 allows for aggregating items of income from partnership K-1’s into a single silo – if certain criteria are met.
  • The IRS is going to issue a “Schedule M” for the 2018 Form 990-T which will – purportedly – be a schedule for enumerating the various “silos” an institution may have.

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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