TEGE Council Submits Comments on section 512(a)(6) (UBIT Siloing)

The TEGE Council has submitted comments on the proposed UBIT siloing rules under section 512(a)(6).

"We are pleased to announce that on June 23, 2020, the TEGE Exempt Organizations Council submitted comments to the IRS and Treasury in response to proposed regulations under Section 512(a)(6), commonly known as the UBIT Silo regulations. The comments were 101 pages, with exhibits, and represent a herculean effort on the part of the group below to spot issues, identify potential solutions, propose examples, and collaborate, coordinate, draft, and edit—all within the short window of time to submit comments for official consideration. Thanks to the committee for the generous gift of time, thought, and leadership.  Thanks also to Alexander L. Reid (Regulatory Affairs Chair) and Chelsea Rubin for their leadership."

Here are some of the bottom line comments from the executive summary describing the 101 pages of comments:

"This section provides an outline of our recommendations, each of which is further explained below.

1. Taxpayers should be allowed to identify separate trades or businesses based on all applicable facts and circumstances, consistent with the other aspects of tax-exempt organization tax law. The NAICS codes should operate as a safe harbor for purposes of identifying separate trades or businesses.

2. Taxpayers should be permitted to change the identification of a trade or business (i.e. change the NAICS code assigned to its “silo”) within the first two years of operating a new trade or business regardless of the presence of any mistake in identifying the most appropriate NAICS code. There should be additional flexibility in revising the use of  DB1/ 114583248.3 3 NAICS codes that, due to further experience with the rules and accounting for the activities, become better defined over time.

3. Investment activity is not an unrelated trade or business and should not be treated as an unrelated trade or business subject to 512(a)(6).

4. If the IRS and Treasury treat investment activity as an unrelated trade or business, then we recommend the following to make the regulations more administrable and less burdensome:   a. Jettison the de minimis and control tests outlined in the proposed regulations for
purposes of determining when a partnership is an investment or an operating business and use applicable accounting standards instead.  b. ERISA-covered trusts should be permitted to aggregate all unrelated trade or business activities together, including UBTI arising from a partnership, because ERISA oversight rules ensure that such plans do not engage in a trade or business through partnership activity.
c. Investments managed by registered investment advisors should be treated as qualifying investment activities that may be aggregated together." 

There are 13 total executive summary points.

Philip Hackney