Third Church operates a gift shop in its parish house. The total income of the church is $800,000 . Of this amount, $300,000 comes from offerings and $500,000 comes from the net income of the gift shop. The gift shop operations are conducted by six full-time, paid employees. Which of the following statements is correct?
a. The $800,000 is unrelated business income.
b. The $500,000 of gift shop net income is unrelated business income.
c. The $300,000 is unrelated business income because the gift shop is a feeder organization.
d. None of the $800,000 is unrelated business income.
e. The unrelated business income tax does not apply to churches.
b
RATIONALE: The gift shop net income of $500,000 is subject to the unrelated business income tax. For the $500,000 not to be classified as unrelated business income, the individuals performing substantially all of the work of the gift shop would need to do so without compensation. This is not the case for Third Church's gift shop, in that the work is performed by six paid employees.
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