A Broader Tax Exemption - Excluding Income Related to Governmental Functions

Jan/Feb 2016

Taxation of Exempts

There is a little-known section of the Code that excludes almost all revenue from the definition of "gross income." Moreover, if the revenue of an exempt organization qualifies for exclusion under this provision, the organization can be exemt from filing annual Forms 990. The exclusion provided by this rarely used Code section covers a much broader scope of revenue than the exclusion from the definition of unrelated businessincome, and it is easier for qualifying organizations to obtain recognition of such qualification than it is to obtain tax-exempt status. Finally, even if an organization's exemption is revoked by the Service, the exclusion of revenue from the definition of gross income may remain intact.