When is a business not a business? Exploiting business opportunities and enhancing economic returns by capitalizing on the income tax exemption of tax-exempt organizations

The unrelated business income tax rules are far from a seamless web that applies to the business income of tax-exempt organizations. The first issue that must be addressed by the rules, and one in which they fail miserably, is the appropriate types of business income that are sought to be taxed. The rules are a product of a generation that emphasized form, rather than the substance, of economic arrangements. The principle that the purpose of the rules is to prevent tax-exempt organizations from engaging in untoward competition with taxable organizations seems suspect. A more appropriate rule might be that the income of business enterprises should be subject to at least one level of federal income tax.