UBTI proposed regulations clarify uncertainties, questions remain

Overview

The IRS on April 23 released proposed regulations (Proposed Regulations) under Section 512(a)(6) requiring segmentation of unrelated business taxable income (UBTI). The Proposed Regulations adopt aspects of interim guidance in Notice 2018-67, including:

• Reliance on North American Industry Classification System (NAICS) codes to identify separate trades or businesses (the Proposed Regulations adopt of a system of 2-digit codes versus 6-digit codes described in the Notice), 
• Modification of the ‘de minimis’ and ‘control’ tests for aggregating partnership investments (first described in the Notice), and
• Descriptions of topics not covered in the Notice, such as the ordering of net operating losses (NOLs).

The takeaway

Although the Proposed Regulations are not yet binding, organizations should consider analyzing their potential impact on their UBTI reporting. Organizations may consider submitting comments to the IRS in response to the Proposed Regulations.