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Handbook of Business Procedures

Date published: 
Last revised: 
Issued by: 

June 16, 2009
March 22, 2010
Financial Accounting Services


Part 5. Sales of Goods and Services - Table of Contents


The IRS imposes a tax called the unrelated business income tax on exempt organizations, such as universities, which recognizes revenues from activities that are not related to the mission of these organizations. The unrelated activity may be taxed even when the profits are used to fund activities related to the mission of the organization, such as a university’s education and research activities.

In order to determine whether income may be taxable, a three-part test must be applied to the activity itself, regardless of the intended purpose for any profit realized from the activity. To determine if the activity might be considered unrelated business income, answer the following questions:

  • Is the activity substantially unrelated to the university’s exempt purpose of education and research?
  • Is the activity a trade or business as evidenced by intent to profit?
  • Is the activity regularly carried on as evidenced by frequency and continuity of the activity?

If you answered "yes" to all of these questions, please review the discussion of University of Texas System’s policies and procedures for reporting unrelated business income and determining whether the activity is taxable: UTS103 - Unrelated Business Income Tax. Then complete the Non-Financial Questionnaire.

If you believe your department may be involved in activities that may be subject to tax, please contact Armando Vela in the Office of Accounting at


Part 5. Sales of Goods and Services - Table of Contents