August 22 2018

Guidance issued on unrelated business income tax and treatment of GILTI for tax-exempt organizations

Source: IBFD Tax Research Platform News

The US Treasury Department and the US Internal Revenue Service (IRS) issued IRS Notice 2018-67 on 21 August 2018 to provide guidance on the calculation of the unrelated business taxable income (UBTI) for tax-exempt organizations under section 512(a)(6) of the US Internal Revenue Code (IRC).

IRS Notice 2018-67 sets forth interim guidance and transition rules, and also solicits comments, regarding IRC section 512(a)(6), which requires an organization subject to the unrelated business income tax under IRC section 511 to calculate the UBTI separately with respect to each trade or business if the organization carries on more than one unrelated trade or business.

IRS Notice 2018-67 also provides guidance on the treatment of the global intangible low-taxed income (GILTI) under IRC section 951A for purposes of the unrelated business income tax under IRC section 511.

Specifically, IRS Notice 2018-67 provides that:

  • an inclusion of the GILTI will be treated as a dividend which is generally excluded from the UBTI under IRC section 512(b)(1); and
  • unless otherwise provided in proposed regulations, the UBTI will not include the GILTI that is attributable to insurance income.

The guidance provided in IRS Notice 2018-67 may be relied upon until proposed regulations are published.