Before the enactment of Revenue Act of 1950 (IRC Sec. 511- IRC Sec. 513), the Tax Code allowed the exempt organizations to own and operate unrelated businesses without being subject to any income tax. By 1950 many tax-exempt organizations were competing with taxable entities in profitable business activities. Thus, the Revenue Act of 1950 was enacted which taxed the Unrelated Business Taxable Income of the tax-exempt organization. The Act was legislated to eliminate the unfair competition brought forward by the tax-exempt organization. Such organizations would indulge in profitable activities, and not be taxed on its income, and as a result had an advantage of lower capital requirements and increased market share.
Internal Revenue Code Sec. …show more content…
United States, 693 F.2 525 (5th Cir. 1982), the Louisiana Credit Union League (hereinafter CUL) engaged in unrelated trade or business by endorsing insurance companies, and receiving commissions on policies written. The CUL also endorsed credit collection services and received commissions on the collection, and if offered to its member computer services through the contract with data processing co. and received profit from monthly charges. In determining if CUL’s activities were trade or business to determine if such activity was unrelated trade or business to its exempt purposes, the Fifth Appeals Court literally used the language of IRC Sec. 513(c) that any performance of service giving rise to income be deemed a “trade or business when the taxpayer argued that its intention was not to create any competition, specifically for which the Revenue Act of 1950 was enacted, and there was no guarantee for its profit in endorsements. The Court also stated the Sec. 513(c) allows no other conclusion than recognizing such activity as trade or …show more content…
In determining whether the trade or business activity is regularly carried on, the frequency and continuity of the activities from which gross income is derived, the manner in which such activities are conducted, the similarity of comparable activities to non-exempt organizations are the main factors considered. If the activities are engaged in a discontinuous or periodic manner, they will not be considered regularly carried on. Moreover, such activities to be considered not regularly carried on must be conducted in a non-competitive manner, and the promotional efforts must not be similar to the commercial non-exempt organization. However, some activities may be conducted so infrequently that neither their manner of conduct or recurrence would cause an exempt organization to recognize such activity as regularly carried on activity. Hence, such activities will not be treated as regularly carried on mainly because they are conducted on an annually recurrent basis. A special fundraiser activity that recurs annually for a very short period will not be treated as regularly carried
Internal Revenue Code Sec. …show more content…
United States, 693 F.2 525 (5th Cir. 1982), the Louisiana Credit Union League (hereinafter CUL) engaged in unrelated trade or business by endorsing insurance companies, and receiving commissions on policies written. The CUL also endorsed credit collection services and received commissions on the collection, and if offered to its member computer services through the contract with data processing co. and received profit from monthly charges. In determining if CUL’s activities were trade or business to determine if such activity was unrelated trade or business to its exempt purposes, the Fifth Appeals Court literally used the language of IRC Sec. 513(c) that any performance of service giving rise to income be deemed a “trade or business when the taxpayer argued that its intention was not to create any competition, specifically for which the Revenue Act of 1950 was enacted, and there was no guarantee for its profit in endorsements. The Court also stated the Sec. 513(c) allows no other conclusion than recognizing such activity as trade or …show more content…
In determining whether the trade or business activity is regularly carried on, the frequency and continuity of the activities from which gross income is derived, the manner in which such activities are conducted, the similarity of comparable activities to non-exempt organizations are the main factors considered. If the activities are engaged in a discontinuous or periodic manner, they will not be considered regularly carried on. Moreover, such activities to be considered not regularly carried on must be conducted in a non-competitive manner, and the promotional efforts must not be similar to the commercial non-exempt organization. However, some activities may be conducted so infrequently that neither their manner of conduct or recurrence would cause an exempt organization to recognize such activity as regularly carried on activity. Hence, such activities will not be treated as regularly carried on mainly because they are conducted on an annually recurrent basis. A special fundraiser activity that recurs annually for a very short period will not be treated as regularly carried