To Tax or Not to Tax?

Many private Christian colleges and universities find it advantageous to utilize their facilities for summer camping activities. Not only does this provide additional cash flow for spaces that may be underutilized, but it can also build an affinity to the school among individuals and organizations who interact with the school in this way. In essence, it can be a “soft recruiting” tool.  However, there are times when this activity may be taxed. How can you tell?  The case study below may help clarify.


Troas Bible College (TBC) is a private university.  TBC has some dormitories that are used to house students during the fall and spring semesters.  During the summer months, TBC coordinates with Youth Sportz, a charitable organization within the meaning of Section 501(c)(3), for Youth Sportz to conduct summer sports and educational camps for youth.   TBC leases dormitory space to the participants of the camps and for the camp’s counselors.  TBC’s income from the lease of the dormitory space to the camp participants and counselors is not income from an unrelated business because the activity contributes to the educational purposes of TBC. The delineation here is that Youth Sportz is a charitable organization under I.R.C. section 501(c)(3) rather than a for-profit enterprise.  The revenue would be deemed “dual-use facilities” income if – for instance – the camp was run by a coach’s LLC or corporation (which we see often in our client base).


Treasury Regulation 1.513-1(d)(4)(iii) provides that, in certain cases, an asset or facility necessary to the conduct of exempt functions may also be employed in a commercial endeavor. In such cases, the mere fact of the use of the asset or facility in exempt functions does not, by itself, make the income from the commercial endeavor gross income from related trade or business. The test, instead, is whether the activities productive of the income in question contribute importantly to the accomplishment of exempt purposes.

Private Letter Ruling 8151005 – RULED: Income from hockey camp is from exempt activity related to C’s purposes and isn’t subject to tax. It was directly operated by C, to provide hockey instruction for children and is integral part of C’s educational program.

However, Rev. Rul. 76-402, 1976-2 C.B. 177, states that an exempt school annually contracts with an individual who conducts a 10-week summer tennis camp with the school furnishing the tennis courts, housing, and dining facilities and the individual hiring the instructors, recruiting campers, and providing supervision. The amounts received are from the dual use of facilities and personnel; therefore, an allocable portion of expenses attributable to such facilities and personnel may be deducted in computing unrelated business taxable income under IRC 512.

Bottom Line

UBIT is complicated!! 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.

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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.