Section 511 of the Internal Revenue Code

Section 511 of the Internal Revenue Code imposes a tax on the unrelated business income (UBI) of tax-exempt organizations, such as charities and universities. UBI refers to income from activities not directly related to an organization’s exempt purpose. For example, if a charity runs a coffee shop, the profits from that shop might be taxable under this section. The goal is to ensure that tax-exempt organizations do not have an unfair advantage over taxable businesses when they engage in unrelated commercial activities. Organizations must report this income and pay the appropriate taxes on it.