Conference Spaces
If the University conducts conferences and meetings at its conference center for a nonprofit, 501(c)(3) organization, the activity is generally considered related to University educational purposes and thus not subject to unrelated business income tax (UBIT).
If the University provides conference services to an entity that is not a nonprofit 501(c)(3) organization, such as a trade association or a social club, the activity is generally considered not related to University exempt purposes and thus is subject to UBIT, even if the entity is organized on another nonprofit basis. The same conclusion generally pertains if the University rents its facilities to a for-profit company.
If the University rents its facilities to a for-profit company to conduct a special training program for the company’s employees, the activity needs to be examined carefully. If the nature of the training program is the same as a course taught at the University (for example, the program follows the educational curriculum in place at the University, utilizes University professors and teaching assistants, and academic credit is awarded to the participants), then the training program can be treated as related to University educational purposes and is not subject to UBIT (Rev. Rule. 68-504, 1968-2 CB211). Otherwise, the activity is generally considered not related to University exempt purposes and is subject to UBIT.
Dormitories
When the University rents dormitory spaces to its students and faculty members, the activity is considered related to University exempt purposes and is not subject to UBIT. It is also considered related when the University leases dormitory spaces to students from other educational organizations who are participating in an educational program (PLR 9014069).
In a private letter ruling, the IRS ruled that rental revenues from family members of students and faculty, potential students, family members of potential students, and guest speakers of the University are also substantially related to University educational purposes (PLR 200625035).
If dormitory rentals are related to conference activities, the same rules governing the conference space rental will apply.
Rental Exclusion
Unrelated income from leasing conference or dormitory spaces may still be excluded under the rental income exclusion. However, whether this exclusion will apply depends on the degree and extent of services provided as part of the rental activity. For example, if catering service is provided to meeting participants, the rental exclusion may not apply.