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Related / Unrelated Income Classification for Non-Profit Corporations

Hello, Wondering whether non-profit corporation is allowed to invest / buy 10 year note with real estate as a collateral. Will the earned interest income jeopardize the tax-exempt status of the organization? Thank you!

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

A non-profit can enter into any type of business relationship. However, the income/expenses may not be exempt from taxes.

Speak w/your auditor or legal advisor on what is the best way to handle this issue.

Anonymous
(Project Accountant Specialist) |

Thank you, Wayne!
The main concern is whether such a type of business would jeopardize the tax-exempt status of the organization. This is a religious organization and Board is basically looking to invest excess funds in 10 year note backed by real estate, instead of keeping money in the bank with minimal interest rate.
I did some research and found an article called "How to Lose Your 501(c)(3) Tax Exempt Status (Without Really Trying)" which talks about unrelated business income (UBI) (below is the link). However, the article has no specifics, so any advice would be greatly appreciated.

https://www.nonprofitrisk.org/library/articles/How_to_Lose_Your_Tax_Exempt_Status.shtml

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

UBI is not prohibited, and an investment per-se may not be considered UBI.

Again, speak w/your auditor or legal advisor, this forum is not the place to seek authoritative answers.

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