Question

Save the Squirrels, Inc., a § 501(c)(3) organization that feeds the squirrels in municipal parks, receives a $250,000 contribution from Animal Feed, Inc., a for-profit entity that sells animal feed. In exchange for the contribution, Save the Squirrels will identify Animal Feed as a major supporter in its monthly newsletter.

Assume that there are no related expenses or adjustments and that each scenario below is independent of the other.

Assume a 21% corporate income tax rate. If an amount is zero, enter "0".

a. Complete the statement below that outlines Save the Squirrels' UBIT, assuming it receives no other similar payments.

The $250,000 contribution made by Animal Feed to Save the Squirrels is a qualified  corporate sponsorship payment. The payment is not  considered unrelated business income. Therefore, Save the Squirrels' UBIT is $.

b. Complete the statement below that outlines Save the Squirrels' UBIT, assuming it agrees to identify Animal Feed as a major supporter and to include a half-page advertisement for Animal Feed products in its monthly newsletter as a result of the contribution.

The $250,000 contribution made by Animal Feed is not a qualified  corporate sponsorship payment. The payment is  considered unrelated business income. Therefore, Save the Squirrels' UBIT is $.

Answer 1

Answer:

Determination of Unrelated Business Taxable Income (UBTI) and Unrelated Business Income Tax (UBIT) under scenarios a & b

a) Save the Squirrels receives no other similar payments

The $250,000 contribution made by Animal Feed to Save the Squirrels is a qualified  corporate sponsorship payment. The payment is not considered unrelated business income. Therefore, Save the Squirrels' UBIT is "$ 0".

b) Save the Squirrels agrees to identify Animal Feed as a major supporter and to include a half-page advertisement for Animal Feed products in its monthly newsletter as a result of the contribution.

The $250,000 contribution made by Animal Feed is not a qualified  corporate sponsorship payment. The payment is considered unrelated business income.

Therefore, UBTI is $250,000,

Corporate Income tax rate = 21%

UBIT thereon = 21% of $250,000

= $52,500