Rev. Proc. 2016-55 provides exempt organizations with two inflation adjustments for 2017.
1. Dues Paid to Agricultural or Horticultural Organizations
Agricultural and horticultural organizations described in §501(c)(5) are exempt organizations subject to the UBIT. Section 512(d) contains a special rule under which no portion of member dues paid to an agricultural or horticultural organization can be treated as UBTI by reason of benefits or privileges to which members are entitled. For tax years beginning in 2017, the exclusion applies so long as:
- Payment of dues is a condition of membership; and
- The required annual dues do not exceed $162. !
When §512(d) was enacted in 1996, effective for tax years beginning after Dec. 31, 1986, the dollar limitation was $100. The limitation has been adjusted for inflation for taxable years beginning after 1995. Section 3.29 of Rev. Proc. 2016-55 provides that the inflation adjusted amount for 2017 is $162.
2. Limitation for Contributions Solicited Using Low Cost Articles
Charitable organizations sometimes solicit contributions by mailing out low cost items to potential donors. For example, the envelope containing the solicitation may state “A Free Gift For You Inside.” The organization hopes that the reference to the gift may motivate the recipient to open the envelope and that receipt of the item will spur the recipient to respond with a contribution. Typical low cost articles furnished with solicitations include calendars, pens, greeting cards, note pads, and mailing labels. Because the sale of goods constitutes a trade or business for purposes of the UBIT, contributions received in connection with low cost articles might be considered a taxable sale of the items by the organization to the extent of the value of the items. To prevent this result for inexpensive items, §513(h) provides that the activities relating to the distribution of low cost articles are not an unrelated trade or business if the distribution is incidental to the solicitation of charitable contributions. For taxable years beginning in 2017, a low cost article is an item that cost the organization $10.70 or less.
When the low cost articles exception was enacted in 1986, the exception applied to articles costing $5.00 or less. The amount has been indexed for inflation since 1988. Section 3.30(1) of Rev. Proc. 2016-55 provides that the inflation-adjusted amount for 2017 is $10.70.
Resources: Rev Proc. 2016-55, 2016-2 C.B. 707