Stanford Offers an Online Course on Hotel UBITOMY
Never heard of UBITOMY? UBI stands for Unrelated Business Income – as defined by the IRS – of normally tax-exempt entities such as universities. But when such entities create enterprises that do business unrelated to the function of the entity, Unrelated Business Income Tax (UBIT) is owed.
UCLA’s proposed new hotel comes with a business plan chock full of ways to fill 250 rooms such as visiting parents, etc. The plan assumes such uses are tax-free. And the plan is built on financing that doesn’t allow commercial uses. But if you take Stanford’s course on UBITOMY, you can learn something about the taxable status of such uses:
Unrelated Business Income (UBI) Tutorial
Stanford University is exempt from income tax under Section 501(c)(3) of the Internal Revenue Code on income from activities that are substantially related to its educational and research missions, which form the basis for the University’s tax exemption.
However, if Stanford were to carry on a trade or business activity that is not substantially related to its exempt purposes, it would be subject to tax on the net income of such a business activity, even though it may bring in funds to support Stanford’s exempt operations…
Rents from real property are generally excluded from unrelated business income… The rental exclusion does not apply when personal services are also rendered to the tenant. In addition, the exclusion does not apply to rental of hotel rooms, rooms in boarding houses or tourist homes, or spaces in parking lots or warehouses.
Example
A University contemplates building and operating a full service hotel on campus to house visiting scholars, parents, visiting athletic teams and guests. The operation of the hotel is an unrelated business activity…
Source: http://www.stanford.edu/group/fms/fingate/staff/taxcompliance/res_jobaid/unRelated_bus_income.html
Apparently, UCLA does not offer this course. But you’ve read it here so when the hotel is built and the IRS comes calling, please don’t say you weren’t warned:
And by the way, UCLA and the Regents were warned about tax issues in public testimony at the last Regents meeting – also available on this blog – by a representative of local hotel operators.