Part 3: Is the activity not substantially related?

If your activity is a trade or business and is regularly carried on, the last part of the UBI test is to decide whether the activity is substantially related to furthering your 501(c)(3)’s exempt purpose.

Any income-producing activity that does not directly further your organization’s exempt purpose could generate UBI.

Sometimes, activities that ARE related to exempt purposes can still generate UBI if they are conducted on a larger scale than is reasonably necessary to perform an exempt function. In this instance, the portion that is more than needed is considered an unrelated trade or business.

Example