
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC513]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                   Subchapter F--Exempt Organizations
 
  PART III--TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT ORGANIZATIONS
 
Sec. 513. Unrelated trade or business


(a) General rule

    The term ``unrelated trade or business'' means, in the case of any 
organization subject to the tax imposed by section 511, any trade or 
business the conduct of which is not substantially related (aside from 
the need of such organization for income or funds or the use it makes of 
the profits derived) to the exercise or performance by such organization 
of its charitable, educational, or other purpose or function 
constituting the basis for its exemption under section 501 (or, in the 
case of an organization described in section 511(a)(2)(B), to the 
exercise or performance of any purpose or function described in section 
501(c)(3)), except that such term does not include any trade or 
business--
        (1) in which substantially all the work in carrying on such 
    trade or business is performed for the organization without 
    compensation; or
        (2) which is carried on, in the case of an organization 
    described in section 501(c)(3) or in the case of a college or 
    university described in section 511(a)(2)(B), by the organization 
    primarily for the convenience of its members, students, patients, 
    officers, or employees, or, in the case of a local association of 
    employees described in section 501(c)(4) organized before May 27, 
    1969, which is the selling by the organization of items of work-
    related clothes and equipment and items normally sold through 
    vending machines, through food dispensing facilities, or by snack 
    bars, for the convenience of its members at their usual places of 
    employment; or
        (3) which is the selling of merchandise, substantially all of 
    which has been received by the organization as gifts or 
    contributions.

(b) Special rule for trusts

    The term ``unrelated trade or business'' means, in the case of--
        (1) a trust computing its unrelated business taxable income 
    under section 512 for purposes of section 681; or
        (2) a trust described in section 401(a), or section 501(c)(17), 
    which is exempt from tax under section 501(a);

any trade or business regularly carried on by such trust or by a 
partnership of which it is a member.

(c) Advertising, etc., activities

    For purposes of this section, the term ``trade or business'' 
includes any activity which is carried on for the production of income 
from the sale of goods or the performance of services. For purposes of 
the preceding sentence, an activity does not lose identity as a trade or 
business merely because it is carried on within a larger aggregate of 
similar activities or within a larger complex of other endeavors which 
may, or may not, be related to the exempt purposes of the organization. 
Where an activity carried on for profit constitutes an unrelated trade 
or business, no part of such trade or business shall be excluded from 
such classification merely because it does not result in profit.

(d) Certain activities of trade shows, State fairs, etc.

                          (1) General rule

        The term ``unrelated trade or business'' does not include 
    qualified public entertainment activities of an organization 
    described in paragraph (2)(C), or qualified convention and trade 
    show activities of an organization described in paragraph (3)(C).

            (2) Qualified public entertainment activities

        For purposes of this subsection--

        (A) Public entertainment activity

            The term ``public entertainment activity'' means any 
        entertainment or recreational activity of a kind traditionally 
        conducted at fairs or expositions promoting agricultural and 
        educational purposes, including, but not limited to, any 
        activity one of the purposes of which is to attract the public 
        to fairs or expositions or to promote the breeding of animals or 
        the development of products or equipment.

        (B) Qualified public entertainment activity

            The term ``qualified public entertainment activity'' means a 
        public entertainment activity which is conducted by a qualifying 
        organization described in subparagraph (C) in--
                (i) conjunction with an international, national, State, 
            regional, or local fair or exposition,
                (ii) accordance with the provisions of State law which 
            permit the activity to be operated or conducted solely by 
            such an organization, or by an agency, instrumentality, or 
            political subdivision of such State, or
                (iii) accordance with the provisions of State law which 
            permit such an organization to be granted a license to 
            conduct not more than 20 days of such activity on payment to 
            the State of a lower percentage of the revenue from such 
            licensed activity than the State requires from organizations 
            not described in section 501(c)(3), (4), or (5).

        (C) Qualifying organization

            For purposes of this paragraph, the term ``qualifying 
        organization'' means an organization which is described in 
        section 501(c) (3), (4), or (5) which regularly conducts, as one 
        of its substantial exempt purposes, an agricultural and 
        educational fair or exposition.

         (3) Qualified convention and trade show activities

        (A) Convention and trade show activities

            The term ``convention and trade show activity'' means any 
        activity of a kind traditionally conducted at conventions, 
        annual meetings, or trade shows, including, but not limited to, 
        any activity one of the purposes of which is to attract persons 
        in an industry generally (without regard to membership in the 
        sponsoring organization) as well as members of the public to the 
        show for the purpose of displaying industry products or to 
        stimulate interest in, and demand for, industry products or 
        services, or to educate persons engaged in the industry in the 
        development of new products and services or new rules and 
        regulations affecting the industry.

        (B) Qualified convention and trade show activity

            The term ``qualified convention and trade show activity'' 
        means a convention and trade show activity carried out by a 
        qualifying organization described in subparagraph (C) in 
        conjunction with an international, national, State, regional, or 
        local convention, annual meeting, or show conducted by an 
        organization described in subparagraph (C) if one of the 
        purposes of such organization in sponsoring the activity is the 
        promotion and stimulation of interest in, and demand for, the 
        products and services of that industry in general or to educate 
        persons in attendance regarding new developments or products and 
        services related to the exempt activities of the organization, 
        and the show is designed to achieve such purpose through the 
        character of the exhibits and the extent of the industry 
        products displayed.

        (C) Qualifying organization

            For purposes of this paragraph, the term ``qualifying 
        organization'' means an organization described in section 
        501(c)(3), (4), (5), or (6) which regularly conducts as one of 
        its substantial exempt purposes a show which stimulates interest 
        in, and demand for, the products of a particular industry or 
        segment of such industry or which educates persons in attendance 
        regarding new developments or products and services related to 
        the exempt activities of the organization.

           (4) Such activities not to affect exempt status

        An organization described in section 501(c) (3), (4), or (5) 
    shall not be considered as not entitled to the exemption allowed 
    under section 501(a) solely because of qualified public 
    entertainment activities conducted by it.

(e) Certain hospital services

    In the case of a hospital described in section 170(b)(1)(A)(iii), 
the term ``unrelated trade or business'' does not include the furnishing 
of one or more of the services described in section 501(e)(1)(A) to one 
or more hospitals described in section 170(b)(1)(A)(iii) if--
        (1) such services are furnished solely to such hospitals which 
    have facilities to serve not more than 100 inpatients;
        (2) such services, if performed on its own behalf by the 
    recipient hospital, would constitute activities in exercising or 
    performing the purpose or function constituting the basis for its 
    exemption; and
        (3) such services are provided at a fee or cost which does not 
    exceed the actual cost of providing such services, such cost 
    including straight line depreciation and a reasonable amount for 
    return on capital goods used to provide such services.

(f) Certain bingo games

                           (1) In general

        The term ``unrelated trade or business'' does not include any 
    trade or business which consists of conducting bingo games.

                       (2) Bingo game defined

        For purposes of paragraph (1), the term ``bingo game'' means any 
    game of bingo--
            (A) of a type in which usually--
                (i) the wagers are placed,
                (ii) the winners are determined, and
                (iii) the distribution of prizes or other property is 
            made,

        in the presence of all persons placing wagers in such game,
            (B) the conducting of which is not an activity ordinarily 
        carried out on a commercial basis, and
            (C) the conducting of which does not violate any State or 
        local law.

(g) Certain pole rentals

    In the case of a mutual or cooperative telephone or electric 
company, the term ``unrelated trade or business'' does not include 
engaging in qualified pole rentals (as defined in section 
501(c)(12)(D)).

(h) Certain distributions of low cost articles without obligation to 
        purchase and exchanges and rentals of member lists

                           (1) In general

        In the case of an organization which is described in section 501 
    and contributions to which are deductible under paragraph (2) or (3) 
    of section 170(c), the term ``unrelated trade or business'' does not 
    include--
            (A) activities relating to the distribution of low cost 
        articles if the distribution of such articles is incidental to 
        the solicitation of charitable contributions, or
            (B) any trade or business which consists of--
                (i) exchanging with another such organization names and 
            addresses of donors to (or members of) such organization, or
                (ii) renting such names and addresses to another such 
            organization.

                    (2) Low cost article defined

        For purposes of this subsection--

        (A) In general

            The term ``low cost article'' means any article which has a 
        cost not in excess of $5 to the organization which distributes 
        such item (or on whose behalf such item is distributed).

        (B) Aggregation rule

            If more than 1 item is distributed by or on behalf of an 
        organization to a single distributee in any calendar year, the 
        aggregate of the items so distributed in such calendar year to 
        such distributee shall be treated as 1 article for purposes of 
        subparagraph (A).

        (C) Indexation of $5 amount

            In the case of any taxable year beginning in a calendar year 
        after 1987, the $5 amount in subparagraph (A) shall be increased 
        by an amount equal to--
                (i) $5, multiplied by
                (ii) the cost-of-living adjustment determined under 
            section 1(f)(3) for the calendar year in which the taxable 
            year begins, by substituting ``calendar year 1987'' for 
            ``calendar year 1992'' in subparagraph (B) thereof.

    (3) Distribution which is incidental to the solicitation of 
                     charitable contributions described

        For purposes of this subsection, any distribution of low cost 
    articles by an organization shall be treated as a distribution 
    incidental to the solicitation of charitable contributions only if--
            (A) such distribution is not made at the request of the 
        distributee,
            (B) such distribution is made without the express consent of 
        the distributee, and
            (C) the articles so distributed are accompanied by--
                (i) a request for a charitable contribution (as defined 
            in section 170(c)) by the distributee to such organization, 
            and
                (ii) a statement that the distributee may retain the low 
            cost article regardless of whether such distributee makes a 
            charitable contribution to such organization.

(i) Treatment of certain sponsorship payments

                           (1) In general

        The term ``unrelated trade or business'' does not include the 
    activity of soliciting and receiving qualified sponsorship payments.

                 (2) Qualified sponsorship payments

        For purposes of this subsection--

        (A) In general

            The term ``qualified sponsorship payment'' means any payment 
        made by any person engaged in a trade or business with respect 
        to which there is no arrangement or expectation that such person 
        will receive any substantial return benefit other than the use 
        or acknowledgement of the name or logo (or product lines) of 
        such person's trade or business in connection with the 
        activities of the organization that receives such payment. Such 
        a use or acknowledgement does not include advertising such 
        person's products or services (including messages containing 
        qualitative or comparative language, price information, or other 
        indications of savings or value, an endorsement, or an 
        inducement to purchase, sell, or use such products or services).

        (B) Limitations

            (i) Contingent payments

                The term ``qualified sponsorship payment'' does not 
            include any payment if the amount of such payment is 
            contingent upon the level of attendance at one or more 
            events, broadcast ratings, or other factors indicating the 
            degree of public exposure to one or more events.
            (ii) Safe harbor does not apply to periodicals and 
                    qualified convention and trade show 
                    activities

                The term ``qualified sponsorship payment'' does not 
            include--
                    (I) any payment which entitles the payor to the use 
                or acknowledgement of the name or logo (or product 
                lines) of the payor's trade or business in regularly 
                scheduled and printed material published by or on behalf 
                of the payee organization that is not related to and 
                primarily distributed in connection with a specific 
                event conducted by the payee organization, or
                    (II) any payment made in connection with any 
                qualified convention or trade show activity (as defined 
                in subsection (d)(3)(B)).

            (3) Allocation of portions of single payment

        For purposes of this subsection, to the extent that a portion of 
    a payment would (if made as a separate payment) be a qualified 
    sponsorship payment, such portion of such payment and the other 
    portion of such payment shall be treated as separate payments.

(Aug. 16, 1954, ch. 736, 68A Stat. 172; Pub. L. 86-667, Sec. 4, July 14, 
1960, 74 Stat. 536; Pub. L. 91-172, title I, Sec. 121(b)(4), (c), Dec. 
30, 1969, 83 Stat. 541, 542; Pub. L. 94-455, title XIII, Secs. 1305(a), 
1311(a), Oct. 4, 1976, 90 Stat. 1716, 1729; Pub. L. 95-502, title III, 
Sec. 301(a), Oct. 21, 1978, 92 Stat. 1702; Pub. L. 96-605, title I, 
Sec. 106(b), Dec. 28, 1980, 94 Stat. 3524; Pub. L. 99-514, title XVI, 
Secs. 1601(a), 1602(a), (b), Oct. 22, 1986, 100 Stat. 2766, 2767; Pub. 
L. 101-508, title XI, Sec. 11101(d)(1)(G), Nov. 5, 1990, 104 Stat. 1388-
405; Pub. L. 103-66, title XIII, Sec. 13201(b)(3)(H), Aug. 10, 1993, 107 
Stat. 459; Pub. L. 105-34, title IX, Sec. 965(a), Aug. 5, 1997, 111 
Stat. 893.)

  Adjustment of Low Cost Article Limitation for Tax Years Beginning in 
                                  2001

        For adjustment of ``low cost article'' limitation under 
    subsection (h)(2) of this section for tax years beginning in 2001, 
    see section 3.13(1) of Revenue Procedure 2001-13, set out as a note 
    under section 1 of this title.


                               Amendments

    1997--Subsec. (i). Pub. L. 105-34 added subsec. (i).
    1993--Subsec. (h)(2)(C)(ii). Pub. L. 103-66 substituted ``calendar 
year 1992'' for ``calendar year 1989''.
    1990--Subsec. (h)(2)(C)(ii). Pub. L. 101-508 inserted before period 
at end ``, by substituting `calendar year 1987' for `calendar year 1989' 
in subparagraph (B) thereof''.
    1986--Subsec. (d)(3)(B). Pub. L. 99-514, Sec. 1602(a), inserted ``or 
to educate persons in attendance regarding new developments or products 
and services related to the exempt activities of the organization''.
    Subsec. (d)(3)(C). Pub. L. 99-514, Sec. 1602(b), substituted 
``section 501(c)(3), (4), (5), or (6)'' for ``section 501(c)(5) or (6)'' 
and inserted ``or which educates persons in attendance regarding new 
developments or products and services related to the exempt activities 
of the organization''.
    Subsec. (h). Pub. L. 99-514, Sec. 1601(a), added subsec. (h).
    1980--Subsec. (g). Pub. L. 96-605 added subsec. (g).
    1978--Subsec. (f). Pub. L. 95-502 added subsec. (f).
    1976--Subsec. (d). Pub. L. 94-455, Sec. 1305(a), added subsec. (d).
    Subsec. (e). Pub. L. 94-455, Sec. 1311(a), added subsec. (e).
    1969--Subsec. (a)(2). Pub. L. 91-172, Sec. 121(b)(4), inserted 
reference to local associations of employees described in section 
501(c)(4) of this title and organized before May 27, 1969.
    Subsec. (c). Pub. L. 91-172, Sec. 121(c), substituted ``Advertising, 
etc., activities'' for ``Special rule for certain publishing 
businesses'', in heading, and, in text, substituted provisions extending 
definition of trade or business to include any activity carried on for 
the production of income from the sale of goods or the performance of 
services, for provisions referring to publishing businesses carried on 
by an organization during a taxable year beginning before Jan. 1, 1953.
    1960--Subsec. (b)(2). Pub. L. 86-667 included trusts described in 
section 501(c)(17).


                    Effective Date of 1997 Amendment

    Section 965(b) of Pub. L. 105-34 provided that: ``The amendment made 
by this section [amending this section] shall apply to payments 
solicited or received after December 31, 1997.''


                    Effective Date of 1993 Amendment

    Amendment by Pub. L. 103-66 applicable to taxable years beginning 
after Dec. 31, 1992, see section 13201(c) of Pub. L. 103-66, set out as 
a note under section 1 of this title.


                    Effective Date of 1990 Amendment

    Amendment by Pub. L. 101-508 applicable to taxable years beginning 
after Dec. 31, 1990, see section 11101(e) of Pub. L. 101-508, set out as 
a note under section 1 of this title.


                    Effective Date of 1986 Amendment

    Section 1601(b) of Pub. L. 99-514 provided that: ``The amendment 
made by this section [amending this section] shall apply to 
distributions of low cost articles and exchanges and rentals of member 
lists after the date of the enactment of this Act [Oct. 22, 1986].''
    Section 1602(c) of Pub. L. 99-514 provided that: ``The amendments 
made by this section [amending this section] shall apply to activities 
in taxable years beginning after the date of the enactment of this Act 
[Oct. 22, 1986].''


                    Effective Date of 1980 Amendment

    Section 106(c)(2) of Pub. L. 96-605 provided that: ``The amendment 
made by subsection (b) [amending this section] shall apply to taxable 
years beginning after December 31, 1969.''


                    Effective Date of 1978 Amendment

    Section 301(b) of Pub. L. 95-502 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply to taxable years 
beginning after December 31, 1969.''


                    Effective Date of 1976 Amendment

    Section 1305(b) of Pub. L. 94-455 provided that: ``The amendments 
made by subsection (a) [amending this section] apply to qualified public 
entertainment activities in taxable years beginning after December 31, 
1962, and to qualified convention and trade show activities in taxable 
years beginning after the date of enactment of this Act [Oct. 4, 
1976].''
    Section 1311(b) of Pub. L. 94-455, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``The amendment 
made by this section [amending this section] shall apply to all taxable 
years to which the Internal Revenue Code of 1986 [formerly I.R.C. 1954] 
[this title] applies.''


                    Effective Date of 1969 Amendment

    Amendment by Pub. L. 91-172 applicable to taxable years beginning 
after Dec. 31, 1969, see section 121(g) of Pub. L. 91-172, set out as a 
note under section 511 of this title.


                    Effective Date of 1960 Amendment

    Amendment by Pub. L. 86-667 applicable to taxable years beginning 
after Dec. 31, 1959, see section 6 of Pub. L. 86-667, set out as a note 
under section 501 of this title.


Conducting of Certain Games of Chance Not Treated as Unrelated Trade or 
                                Business

    Pub. L. 98-369, div. A, title III, Sec. 311, July 18, 1984, 98 Stat. 
786, as amended by Pub. L. 99-514, Sec. 2, title XVIII, Sec. 1834, Oct. 
22, 1986, 100 Stat. 2095, 2852, provided that:
    ``(a) General Rule.--For purposes of section 513 of the Internal 
Revenue Code of 1986 [formerly I.R.C. 1954] (defining unrelated trade or 
business), the term `unrelated trade or business' does not include any 
trade or business which consists of conducting any game of chance if--
        ``(1) such game of chance is conducted by a nonprofit 
    organization,
        ``(2) the conducting of such game by such organization does not 
    violate any State or local law, and
        ``(3) as of October 5, 1983--
            ``(A) there was a State law (originally enacted on April 22, 
        1977) in effect which permitted the conducting of such game of 
        chance by such nonprofit organization, but
            ``(B) the conducting of such game of chance by organizations 
        which were not nonprofit organizations would have violated such 
        law.
    ``(b) Effective Date.--Subsection (a) shall apply to games of chance 
conducted after June 30, 1981, in taxable years ending after such 
date.''
    [Section 1834 of Pub. L. 99-514, as amended by Pub. L. 100-647, 
title VI, Sec. 6201, Nov. 10, 1988, 102 Stat. 3730, provided in part 
that: ``The amendment made by this section [amending section 311 of Pub. 
L. 98-369, set out above] shall apply to games of chance conducted after 
October 22, 1986, in taxable years ending after such date''.]

                  Section Referred to in Other Sections

    This section is referred to in sections 144, 145, 150, 414, 501, 
509, 512, 514, 527, 593, 1245, 1250, 3121, 4942, 7611 of this title; 
title 16 section 2708; title 29 section 1002; title 39 section 3626; 
title 42 section 410.
