UBTI Silo Rules; Guidance for Tax-Exempt Organizations; The U.S. Treasury Department and Internal Revenue Service (IRS) today issued proposed regulations for unrelated businesses income for tax-exempt organizations under the Tax Cuts and Jobs Act (TCJA). The proposed guidance for tax-exempt organizations covers all the details regarding the unrelated business income tax of tax-exempt groups with more than one unrelated trade or business on how to calculate their unrelated business taxable income (UBTI).
Guidance for Tax-Exempt Organizations to Apply UBTI “Silo” Rules by Identifying Separate Trades or Businesses
The proposed regulations by Treasury and IRS provide rules and guidance for tax-exempt organizations on identification of separate trades or businesses, including investment activities, as well as certain other amounts included in UBTI. Furthermore, tax-exempt organizations subject to the UBTI tax are required to compute UBTI, including any NOL deduction, separately for each trade or business (which is known as a “silo”). This is mandatory as per the changes under the Tax Cuts and Jobs Act (TCJA).
Before the TCJA was passed, UBTI was the gross income of all unrelated trades or businesses less the allowed deductions from all unrelated trades or businesses under the prior law. Starting in tax-year 2018 (i.e. for the tax years beginning after December 31, 2017), the loss from one trade or business may not offset the income from another, separate trade or business. This is the current rule under the Tax Cuts and Jobs Act (TCJA)
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