November 21, 1983
MEMBERS, PRESIDENT'S CABINET
University Policy on Activities Generating Unrelated Business Income
The University is recognized by the Federal government as a tax exempt educational and research institution. The exemption, however, is limited to income generated from activities related to the University's exempt functions of education and research. Net income generated by activities that do not, by government definition, further these exempt functions is considered "unrelated business income" and is subject to Federal income taxation. Gross revenues from unrelated business activities must be reported. As you are aware, it has been determined that a number of University programs or activities have generated unrelated business income. Therefore, on May 15, 1983, the University filed its first "Exempt Organization Business Income Tax Return" with the Internal Revenue Service, reporting unrelated business income generated by the University during the fiscal year 1981-82. The University will file this return annually.
As a matter of policy, all University activities, programs, and other undertakings, whether or not they may generate unrelated business income, will continue to be evaluated on their merits and with respect to their contributions to the University's mission. Policies and procedures currently in effect that govern the establishment and conduct of University activities and specify review and approval requirements will continue to be observed. In addition, when it is anticipated that an activity may generate unrelated business income, the potential tax liability must be among the criteria considered. The generation of unrelated business income does not, in itself, constitute grounds for withholding approval of an activity. When an activity is approved that may produce such income, the tax liability must be considered in planning and budgeting for the activity, and the activity will be subject to ale reporting requirements specified by the University.
The Senior Vice President--Administration is responsible for the University's reporting of unrelated business income to the Internal Revenue Service and for the establishment of adequate internal procedures and guidelines to ensure that such reporting is accurate. Chancellors are responsible for campus implementation of and compliance with required procedures and guidelines and for timely reporting to the Senior Vice President--Administration of all activities generating unrelated business income.
David Pierpont Gardner
See also BFB A-61 concerning Procedures for Determining Unrelated Business Income and Expenses.