# Unrelated Business Income Tax (UBIT) for Booster Clubs

> When booster club concessions, ads, and sales trigger unrelated business income tax, the volunteer and other exceptions, and the $1,000 Form 990-T filing rule.

- URL: https://boosterclub.org/taxes/ubit/
- Section: Taxes
- Updated: 2026-10-08

Unrelated business income tax (UBIT) is the federal tax a 501(c)(3) booster club (one recognized as a tax-exempt charitable or educational organization) owes on net income from a business it regularly carries on that is not substantially related to its exempt purpose. Most volunteer-run booster club fundraising escapes the tax through specific exceptions, but some activities, especially those run with paid help or through commercial advertising sellers, do not.

The treasurer tracks each money-making activity separately and flags any that might be taxable. A club with $1,000 or more of gross income from an unrelated business must file Form 990-T with the Internal Revenue Service (IRS), separate from its annual Form 990-N, 990-EZ, or 990.

## The Three-Part Test

An activity produces unrelated business income only if all three of these are true, and no exception applies:

1. **It is a trade or business.** The club sells goods or services to produce income.
2. **It is regularly carried on.** IRS Publication 598 says activities are regularly conducted if they show frequency and continuity and are pursued like comparable commercial activities. Its examples: a hospital auxiliary's sandwich stand for two weeks at a state fair is not regular; a commercial parking lot operated every Saturday year-round is.
3. **It is not substantially related to the exempt purpose.** The activity itself must contribute importantly to the club's mission. Needing the money does not make an activity related.

## Exceptions That Matter to Booster Clubs

| Exception | The rule (IRS Publication 598) | Booster club fit |
|---|---|---|
| Volunteer workforce | A business in which substantially all the work is performed without compensation is not an unrelated business | The main reason parent-run concession stands and spirit wear sales are usually not taxable |
| Donated merchandise | Selling merchandise substantially all of which was received as gifts is not an unrelated business | Rummage sales, used uniform sales, auctions of donated items |
| Qualified sponsorship payments | Payments for which the sponsor receives only use or acknowledgment of its name or logo are not taxable | Sponsor banners and program listings without advertising; see [Sponsorships vs Advertising](https://boosterclub.org/taxes/sponsorship-vs-advertising/) |
| Convenience of members | A business conducted by a 501(c)(3) primarily for the convenience of its members, students, patients, officers, or employees is not unrelated | Uncertain: booster club members are parents, and game-day sales go mostly to the public, so the club should not rely on it alone |
| Investment income | Dividends, interest, and similar investment income are excluded | Bank interest is not taxable |
| Bingo and certain games | Legal bingo meeting specific conditions is excluded; other games of chance may be excluded if run with substantially all volunteer labor | See [Federal Tax Rules for Raffles](https://boosterclub.org/raffles/federal-rules/) |
| Low-cost articles | Distributing low-cost articles incidental to soliciting donations is not an unrelated business; for 2026 a low-cost article costs $13.90 or less | Logo magnets or stickers mailed with an appeal |

## Booster Club Activities Through the UBIT Lens

| Activity | Usual result | Why |
|---|---|---|
| Concession stand at home games, staffed by parent volunteers | Generally not taxable | Volunteer workforce exception |
| Concession stand with a paid manager or paid workers | May be taxable | The volunteer exception is lost; the club must apply the full test |
| Spirit wear sold by volunteers | Generally not taxable | Volunteer workforce exception |
| Sponsor names and logos on banners, without advertising | Not taxable | Qualified sponsorship payment |
| Ads with prices, endorsements, or calls to buy, sold by volunteers for a single event program | Advertising, but often excluded | An event program is not a periodical; the volunteer exception may apply |
| Ads sold through a hired commercial firm paid a commission | Likely taxable | Publication 598 treats a comparable yearbook advertising arrangement as an unrelated business |
| Annual auction of donated items | Not taxable | Donated merchandise; also not regularly carried on |
| Interest on the club's bank account | Not taxable | Investment income exclusion |

These are general results. The facts of a specific activity, including who works it, how often it runs, and how it is promoted, decide the answer.

## Paid Help Changes the Answer

The volunteer exception requires that substantially all the work be unpaid. Publication 598 does not state a percentage. Hiring a concession manager, paying students or adults to staff a stand, or contracting with a vendor to run sales can remove the exception and make the net income taxable.

Credits count as pay. A 2011 IRS memorandum on booster clubs warned that amounts credited to a participant's account for fundraising could be income from services. A club that "pays" concession workers with credits toward their child's fees has both a private benefit problem and a UBIT problem. See [Private Benefit and Individual Fundraising Accounts](https://boosterclub.org/taxes/private-benefit/).

## Advertising Versus Sponsorship

Treasury Regulation 1.513-4 separates acknowledgment from advertising. A sponsor's name, logo, address, phone number, website, and value-neutral product descriptions are acknowledgment. Messages with qualitative or comparative language, price information, endorsements, or inducements to buy are advertising. Advertising income is business income, taxable when the ad sales are regularly carried on and no exception, such as the volunteer exception, applies. The full rules are on [Sponsorships vs Advertising](https://boosterclub.org/taxes/sponsorship-vs-advertising/).

## Form 990-T

| Item | Rule |
|---|---|
| Filing threshold | Gross income of $1,000 or more from a regularly conducted unrelated business; gross income is gross receipts minus cost of goods sold |
| Specific deduction | $1,000, subtracted in computing taxable unrelated business income |
| Tax rate | 21% for organizations taxed as corporations |
| Due date | 15th day of the 5th month after the end of the club's fiscal year (its 12-month accounting period), the same as the annual return |
| Extension | Form 8868, automatic six months to file, not to pay |
| Filing method | Electronic filing is required |
| Estimated tax | Required if the club expects tax of $500 or more |
| Public inspection | A 501(c)(3) must make its Form 990-T available for public inspection |

Form 990-EZ Part V also asks whether the club had unrelated business gross income of $1,000 or more, and whether it filed Form 990-T.

Example: a club pays two adults to run a weekend snack bar at a community sports complex. Gross receipts are $9,000 and the food cost $3,000, so gross income is $6,000 and Form 990-T is required. Other direct expenses are $2,500, leaving $3,500. After the $1,000 specific deduction, taxable unrelated business income is $2,500, and tax at 21% is $525. Because that exceeds $500, the club should make estimated payments if it expects similar tax the following year.

## When Unrelated Business Gets Too Big

A 501(c)(3) must operate primarily for exempt purposes. A small amount of unrelated business, even taxable business, does not threaten exemption. A club whose largest activity becomes a commercial operation unrelated to students risks more than tax; it risks the exemption itself.

## Recordkeeping

1. Track each money-making activity as its own line in the books: gross receipts, cost of goods sold, and direct expenses.
2. Keep volunteer sign-up sheets for concessions and sales, showing that the work was unpaid.
3. Keep a copy of every sponsor agreement and ad, so the club can show what was acknowledgment and what was advertising.
4. Review the activity list each year before the annual return is prepared.

## Common Mistakes

- **Assuming 501(c)(3) status covers everything.** Exemption does not reach regularly run unrelated businesses, and the club files no Form 990-T when it should.
- **Paying concession workers without rechecking.** One paid manager can remove the volunteer exception for the whole stand.
- **Hiring a commission ad seller.** The arrangement mirrors the IRS yearbook example, and the ad income becomes taxable.
- **Mixing activities in the books.** Without separate records, the club cannot show which income was excluded.
- **Forgetting public inspection.** A filed Form 990-T is open to the public on request, like the annual return.

## Checklist

- [ ] List every money-making activity the club runs and who works it (treasurer)
- [ ] Apply the three-part test and the exceptions to each activity, and record the conclusion (treasurer)
- [ ] Keep volunteer sign-up sheets for concessions and sales (activity chairs)
- [ ] Review any plan to pay workers or hire a vendor before it starts (board)
- [ ] Review sponsor and ad copy for advertising language before printing (fundraising chair)
- [ ] Track gross receipts, cost of goods sold, and direct expenses for each activity separately (treasurer)
- [ ] File Form 990-T by the 15th day of the 5th month after fiscal year end if gross unrelated income was $1,000 or more (treasurer)
- [ ] Make estimated tax payments if the club expects $500 or more of tax (treasurer)
- [ ] Answer the Form 990-EZ Part V unrelated business question consistently with the club's records (treasurer)

## Related Pages

- [Sponsorships vs Advertising for Booster Clubs](https://boosterclub.org/taxes/sponsorship-vs-advertising/) for the qualified sponsorship payment rules
- [Handling Cash at Booster Club Events](https://boosterclub.org/finance/cash-handling/) for concession stand controls
- [Product Fundraisers for Booster Clubs](https://boosterclub.org/fundraising/product-sales/) for margins and inventory
- [Federal Tax Rules for Raffles](https://boosterclub.org/raffles/federal-rules/) for gaming income
- [How to File Form 990-EZ for a Booster Club](https://boosterclub.org/taxes/form-990-ez/) for where unrelated income shows up on the return

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*This page is general information for volunteer-run booster clubs. It is not legal,
tax, or accounting advice, and BoosterClub.org is not a law firm, accounting firm, or
government agency. Rules change and vary by state and district. Confirm current
requirements with the IRS, the relevant state agency, the school district, and a
qualified professional before acting. If a fact on this page is out of date, we want
to know.*

## Sources

1. IRS: https://www.irs.gov/publications/p598
2. IRS: https://www.irs.gov/instructions/i990t
3. IRS: https://www.irs.gov/instructions/i990ez
4. IRS: https://www.irs.gov/instructions/i8868
5. IRS: https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
6. IRS: https://www.irs.gov/pub/irs-irbs/irb02-21.pdf
7. IRS: https://www.irs.gov/pub/irs-tege/booster_club_field_directive_6-27.pdf