Proposed regulations - Calculating UBTI of VEBAs, other exempt organizations 

February 5:  The Treasury Department and IRS today released for publication in the Federal Register proposed regulations (REG-143874-10) as guidance concerning how certain exempt organizations—including a voluntary employees’ beneficiary association (VEBA)— are to calculate their unrelated business taxable income (UBTI).

Today’s proposed regulations [PDF 230 KB] are proposed to apply to tax years ending on or after the date of publication of final regulations.


Written or electronic comments and request for a public hearing concerning today’s proposed regulations must be received by a date that is 90 days after they are published in the Federal Register, which is scheduled for February 6, 2014.

Background

Organizations that are otherwise exempt from tax under section 501(a) are nonetheless subject to tax on their unrelated business taxable income (UBTI) under section 511(a).


Specifically, section 512(a)(3)(E) was added to the Code in 1984 to limit the extent to which the income of certain organizations—including a voluntary employees’ beneficiary association (VEBA)—is exempt from tax. The Code also provides special rules for calculating the UBTI for VEBAs and other identified organizations.


To implement section 512(a)(3)(E), the IRS and Treasury issued proposed and corresponding temporary regulations in 1986. With the issuance of today’s new proposed regulations, the 1986 proposed regulations are withdrawn. The 1986 temporary regulations continue to apply, however, until regulations that finalize today’s proposed regulations are published in the Federal Register.

Proposed regulations (2014)

The preamble to today’s proposed regulations states that this release includes some changes to the 1986 proposed regulations—changes made “to improve clarity” and in response to comments received with respect to the 1986 proposed regulations. Today’s proposed regulations, however, are intended to have generally the same effect as the 1986 proposed regulations and the corresponding temporary regulations. Specifically, the proposed regulations interpret the statute to follow the position of both the Treasury Department and the U.S. Court of Appeals for the Federal Circuit as to the calculation of UBTI.


Today’s proposed regulations address the following areas:


  • Covered entity rules
  • Limitation on amounts set aside for exempt purposes
  • Special rules relating to sections 419A(f)(5) and 419A(f)(6)

Additional discussion concerning the proposed regulations will be provided by KPMG LLP.




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