Overview
Today, Treasury and the IRS released Notice 2018-67, which provides interim guidance and transition rules, and solicits additional comments, regarding a newly-enacted requirement that exempt organizations compute unrelated business taxable income (UBTI) separately with respect to separate businesses. The notice also provides guidance on the treatment of global intangible low-taxed income (GILTI) for unrelated business income tax (UBIT) purposes.
UBIT Guidance
Section 512(a)(6), added by the 2017 tax legislation, P.L. No. 115-97 (the “Tax Act”), requires an organization subject to UBIT, with more than one unrelated trade or business, to calculate UBTI separately with respect to each trade or business.
The notice outlines general concepts for identifying separate trades or businesses for purposes of section 512(a)(6) and provides that an exempt organization may rely on any reasonable, good-faith interpretation, taking into account all the facts and circumstances, when determining whether the organization has more than one unrelated trade or business. The notice specifically states that the use of NAICS six-digit codes will be considered a reasonable, good-faith interpretation until regulations are proposed. The notice also provides interim and transition rules under section 512(a)(6) for aggregating unrelated income from partnerships and debt-financed income from partnerships. Exempt organizations, other than section 501(c)(7) organizations, generally may rely on these aggregation rules.
The notice also includes a discussion of, and requests comments on, several other UBIT issues, but does not provide interim or transition rules, including: (i) possible treatment of income under certain statutory modifications to UBTI; (ii) general principles surrounding income from partnerships; (iii) the application of section 512(a)(6) to section 501(c)(7), (9), (17), and (20) organizations subject to the special UBTI rules of section 512(a)(3); and (iv) the calculation of net operating losses within the framework of section 512(a)(6).
GILTI Guidance
The Tax Act also enacted the GILTI regime, which, at a high level, requires a United States shareholder who owns 10% or more of the stock in a foreign corporation to include in gross income, on a current basis, all net income of the shareholder’s controlled foreign corporations in excess of a specified threshold, with limited exceptions for certain types of income. The notice provides that GILTI generally is to be treated in the same manner as subpart F income for UBIT purposes, namely as a dividend generally excluded from the calculation of UBTI, with some limited exceptions.
Comments Requested
Treasury and the IRS request comments regarding the application of section 512(a)(6) to exempt organizations with more than one unrelated trade or business, including comments on a number of specific issues identified by the notice. Comments should be submitted on or before December 3, 2018.