Situation

Troas Bible College (TBC), a private college that is exempt under I.R.C. section 501(c)(3), is planning a “Christmas Cantata” by a renowned symphony orchestra from a European capital.  The College “hosts” several of these events during the year (so the activity would be considered “regularly carried on”).  TBC advertises these performances and supervises advance ticket sales at various places, including such college facilities as the cafeteria and the college bookstore.  They call to ask us whether this event would be and unrelated business activity and whether this – and the other events of its type – would require separate accounting and Form 990-T filing.

We respond that it is a management best practice to account for events such as this separately, but the event – nor those like it – would be unrelated because the activity appears to have a “direct, causal” relationship to TBC’s exempt purpose.  Another good management practice is to document how/why these activities are related to TBC’s exempt purpose.

Rules

From IRS Publication 598 (“Examples”):

Sponsoring entertainment events.   An exempt university has a regular faculty and a regularly enrolled student body. During the school year, the university sponsors the appearance of professional theater companies and symphony orchestras that present drama and musical performances for the students and faculty members. Members of the general public also are admitted. The university advertises these performances and supervises advance ticket sales at various places, including such university facilities as the cafeteria and the university bookstore. Although the presentation of the performances makes use of an intangible generated by the university’s exempt educational functions—the presence of the student body and faculty—such drama and music events contribute importantly to the overall educational and cultural functions of the university. Therefore, the activity is not an unrelated trade or business.  (Underline added.)

 

Bottom Line

As we’ve said before, the unrelated business activities arena can prove to have difficult issues to navigate. 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.