Unrelated business income tax

The unrelated business income tax is paid by nonprofit entities. The tax only applies to the profit-generating activities of a nonprofit that are unrelated to the purpose for which it was granted an income tax exemption. For example, an educational nonprofit runs an on-site tavern for its staff and students. The income from this operation is considered unrelated, and so is taxable. Certain types of passive income, such as interest income and dividend income, are not considered unrelated, and so are not subject to this tax.