Unrelated Business Income Tax

Tax exemption for the university

The University of California is tax-exempt as an instrumentality of the State of California. The Internal Revenue Code provides that the exempt purposes of state universities include all purposes and functions described in Section 501(c)(3), and under Section 115 excludes gross income of states.

Therefore, for federal income tax purposes, the university/agency may engage in activities that include charitable, scientific, testing for public safety, literary, educational, to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.

Universities/agencies are not, however, exempt from tax imposed by IRC Sections 511, 512, and 513 on activities which are unrelated to those exempt purposes. All activities should be carefully reviewed to determine whether an exempt purpose is also being served.