On April 27, 2020, Chris Moran was quoted in Bloomberg Tax on proposed unrelated business taxable income (UBIT) “silo” regulations for nonprofits. The IRS recently issued guidance clarifying the order in which nonprofits can use net operating losses (NOLs) from unrelated businesses—activities that are separate from a nonprofit’s core mission—to offset taxable income from previous years.
According to the article, the proposed rules direct nonprofits to deduct pre-2018 NOLs first from total unrelated business income “in the manner that results in maximum utilization of the pre-2018 NOLs in a taxable year.” Nonprofits are required to “silo” each source of income, calculating and reporting various items like food sales, ticket sales, income on rental property, and profit from franchise agreements separately. The NOL provision allows nonprofits to apply the losses across all of the silos, instead of separately, to maximize the benefit.
"The NOL provision is definitely taxpayer-friendly," Moran said. "It should help some organizations that have pretty significant pre-2018 NOLs." The rules are expected to benefit large nonprofits with a swath of income streams, like colleges and universities, museums, nonprofit hospitals, and some large foundations with investment income.
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