The IRS issued proposed regulations (REG-106864-18) Thursday, April 23, on the new rule that requires tax-exempt organizations subject to tax on unrelated business taxable income (UBTI) to calculate UBTI separately with respect to each business — or to “silo” revenue and expenses for each separate business.
The proposed regulations call for the use of a two-digit North American Industry Classification System (NAICS) code, which designates the business’s sector of economic activity, such as retail trade or accommodation and food services. By using those broader classifications (rather than the use of a previous six-digit NAICS code), the IRS is making it easier for exempt organizations that run businesses to determine which code applies and to administer the rules.
Once organizations break their businesses into silos, they must determine how to allocate expenses that may apply to more than one activity to each silo. Until the IRS issues further guidance on the issue, organizations can allocate their expenses using any reasonable method. Learn more.