Clinical Trials

The IRS holds that for benefit drug testing is related activity and therefore not subject to unrelated business income tax (UBIT), while not for benefit testing is unrelated activity which is subject to UBIT.  

  • For benefit drug testing includes studies in which drugs are offered to hospital patients who have the disease for which eventual commercial use of a particular drug is intended. 
  • Not for benefit drug testing includes studies involving patients receiving care for unrelated medical reasons.  

Drug testing performed for commercial pharmaceutical firms merely to meet FDA requirements before marketing of the drug is subject to UBIT. The IRS held that this kind of testing is merely a service for the manufacturer rather than for public safety. 

Clinical testing for developmental equipment is also subject to UBIT. The IRS determined that even though the experiments conducted using the instrument were clearly related to University research purposes, the primary purpose of the research was the development and perfection of an instrument for marketing.  

Non-patient lab testing involving student training is not subject to UBIT, given that the testing services contribute importantly and substantially to the medical education program.  

Production testing by students is not subject to UBIT given that the contribution to the University educational purpose is more than incidental. 

Lab testing serving community needs is not subject to UBIT. If testing facilities are otherwise unavailable in the community for a particular type of test, then the testing would serve as an important community need, therefore serving University exempt purposes.