Iris, Inc., a tax-exempt organization, leases a building and equipment to XYZ Corporation.The rental income from the building is $250,000 and from the equipment is $80,000.Rental expenses are $50,000 for the building.What adjustment must be made to net unrelated business income?
A)($280,000).
B)($200,000).
C)($80,000).
D)$280,000.
E)Some other amount.

Question

Quizplus · Accepted Answer

The rental income from the building ($250,000) is subject to unrelated business income tax (UBIT) because it is not substantially related to Iris, Inc.'s tax-exempt purpose. The rental income from the equipment ($80,000) may or may not be subject to UBIT depending on whether the equipment is debt-financed.
Since rental expenses for the building ($50,000) may be deducted from the rental income from the building ($250,000), the adjusted rental income from the building is $200,000 ($250,000 - $50,000). Therefore, only the adjusted rental income from the building ($200,000) is subject to UBIT. The rental income from the equipment ($80,000) and rental expenses for the equipment (if any) are not included in the calculation of UBIT. Thus, the adjustment to net unrelated business income is ($200,000) which is the amount of UBIT resulting from the rental income from the building after deducting the rental expenses for the building.

Iris, Inc, a Tax-Exempt Organization, Leases a Building and Equipment to to XYZ