They do become taxable entirely or in part, however, if: These types of income are generally not treated as UBI-generating. (Such as interest, annuities, rents from real property and royalties) For example, commercial research and development for a for-profit sponsor would require closer scrutiny to determine whether or not the activity fits within the exception. There are certain situations, however, that require further analysis to determine whether or not they fit within the research exception. In general, revenue received by Harvard from research is excluded from UBI. Revenue from an activity conducted for the convenience of Harvard faculty, staff, and/or students in connection with their respective roles does not generate UBI. What are the exceptions to characterizing an activity as UBI-generating that typically apply to activities here at Harvard? The determining factor is the nature of the activity itself. It is irrelevant that the proceeds from an activity are used to fund education or research. Harvard's exempt purposes are education and research, so an activity whose purpose is not substantially related to one of those purposes would be characterized as unrelated. How is an activity characterized as not being substantially related to Harvard's exempt purpose? It means that the exempt organization conducts the activity with the same frequency and continuity, and in a similar manner, as a for-profit organization would conduct a comparable activity. What does it mean to be regularly carried on? We review the facts and circumstances surrounding each activity at Harvard in determining whether a particular activity is a trade or business Some UBI-generating activities show profits in some years and losses in others, so an activity does not always have to generate a profit in order to be considered UBI Whether it is conducted in the same manner as a for-profit business that provides a similar good or service Whether the activity generates a profit, or It is any activity carried on to produce income from the sale of goods or performance of services The latter type of taxable income is rare at Harvard, because our transactions generally fit within the exceptions to the debt-financed income rules Income arising from the conduct of unrelated trade or business that is regularly carried on, andÄebt-financed income, which is usually in the form of rent, interest or royalties arising from financed property There are two types of unrelated business taxable income: Even a tax-exempt educational organization such as Harvard is taxed on its unrelated business taxable income (UBI)
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