July 15, 1999 | Read Time: 1 minute
In a pair of decisions that could affect many non-profit organizations, the U.S. Tax Court has ruled that the money Common Cause and Planned Parenthood Federation of America received by renting their mailing lists is not subject to unrelated-business income tax. Non-profit organizations must pay the tax, known as UBIT, on regularly conducted commercial operations that are not substantially related to their tax-exempt purposes.
The I.R.S. had argued that income from the rental of mailing lists was subject to UBIT because the tax-exempt organizations were running unrelated businesses. But the Tax Court ruled that the rental-list payments generally are royalties, which are exempt from taxation under federal law.
The court also rejected the I.R.S.’s contention that “list brokers,” who received some of the rental payments in part for helping mailers find appropriate lists, were agents of the non-profit groups in running businesses. Such a finding would have meant that the brokers’ revenue would be counted as having been received by the non-profit organizations and be subjected to income tax.
But the court agreed with Common Cause and Planned Parenthood that the brokers were independent entities whose income and work should not be attributed to the tax-exempt groups (Common Cause v. Commissioner of Internal Revenue, 112 T.C. No. 23, and Planned Parenthood Federation of America v. Commissioner of Internal Revenue, T.C. Memo. 1999-206).
