So, continuing to read the book on starting a nonprofit that I should have read a year ago, I learn about UBI, Unrelated Business Income.   If a tax exempt organization has UBI, it has to pay tax on it.

I have been imagining, with the famous difficulty of obtaining money for anything that doesn’t promise a good, dollar-for-dollar return, with the fierce competition for limited nonprofit grants in a world of professional grant writers, that I will routinely package and try to sell the materials children create.  Assuming, of course, that I can find children to make these materials.  I am imagining, perhaps with the wishful, unrealistic expectation that has long been my hallmark, that children may well create materials other kids will love, materials that can be the core of a new literacy curriculum.  And, as I envision it, selling these curriculum materials could bring in a substantial part of the operating budget.  Cutting out some of the begging to philanthropic gatekeepers and middlemen.

There are three main IRS criteria used to determine if a nonprofit’s fundraising income is UBI and therefore taxable.  If the answer to any one is YES, consult your tax adviser, file Form 990-T and pay the taxes due.  And I would seem to be two for two:

1) would the activity generally be considered a trade or business?

2) Is the activity a regular, repeated occurrence, as opposed to a one-time special situation?

To each one I’d answer “Yes!  Hopefully!”  Wrong answer, probably.

On the other hand, why worry?   If the income is small, the tax would be negligible anyway.   If the income is large, cheerfully pay the tax, you’re making a living, you’re paying your people, the organization is a success, against all odds.

It’s them odds I’m against that are nipping at me now.  And their teeth are not dull, nor their jaws weak, I can tell you for sure.  And it doesn’t make the biting any easier to endure  when I think of unregulated for-profit corporations and their sharp teeth, powerful jaws and global reach.  If you’re smart, you don’t pay much in tax.  If you’re not smart that way, it’s a sucker’s game designed for you to lose.  

Better luck next life.