Assignment Question: Save the Puppies ("SP") is a tax-exempt 501(c)(3) public charity. The organization' mission is to rescue puppies in distress.
In 2018, SP received a bequest of $100,000,000, which included an apartment building subject to 80% mortgage. The apt. building produced net income of $100,000/year.
SP invested the remainder of the bequest in alternative investments to earn a higher return. These investments partnerships produced K-1s showing UBTI (unrelated business taxable income) of a total $25,000 for the year. SP's CFO spent approx 10% of her time managing these alternative investments during the year and her annual compensation was $100,000.
SP also started a new puppy-grooming activity. In 2018, this puppy-grooming activity had revenues of $120,000 and direct expenses of $50,000 before overhead. Total headquarters overhead was $50,000 and the grooming activity used approximately 10% of the square footage of their headquarters.
SP also provides puppy-care classes to customers about to adopt a puppy which many local pet stores and animal shelters have now made mandatory before someone can adopt a puppy. This activity earned $50,000 in net income in 2018.
SP allows its employees to pay for subway/metro & parking commuter transportation expenses on a pre-tax basis. SP employees 2018 pre-tax payments totaled $10,000 for subway/metro transportation and $5,000 for parking in SB's headquarters underground parking lot (which is not available for client/customer parking). The cost of SB to maintain the parking garage during the year was $1000 to pay for security guards and resurfacing.
How much UBIT (unrelated business income tax) will SB owe in 2018?
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