When the University provides catering services for events sponsored by the school or by a group affiliated with the school, it is considered related and not subject to unrelated business income tax (UBIT).
If catering services are provided to other unaffiliated charitable or educational organizations, it can be considered a traditional and commonplace function of colleges and universities nationwide, and therefore, related to University exempt purposes and not subject to UBIT. However, catering services for organizations that are not charitable or educational are generally unrelated and subject to UBIT.
Some catering activities are not classified as traditional and commonplace functions of the University. If a food service department caters special functions such as weddings, receptions, graduation and birthday parties, or private parties for University officials, these services are considered unrelated and are subject to UBIT if they are conducted regularly.
If catering activities are advertised and provided to the general public, the IRS will treat the activities as unrelated and subject to UBIT. (Bertrand Harding, The Tax Law of College and Universities, 2nd Edition).