Hello and welcome to the session. This is Professor Farhad. In this session, we are going to look at the taxation of not-for-profit organizations and briefly discuss the unrelated business income tax (UBIT). So, what is the difference between profit and nonprofit taxation? For-profit companies report their revenues minus expenses to determine taxable income. They then multiply this taxable income by their tax rate and pay taxes accordingly. After subtracting taxes from taxable income, they arrive at their net income. On the other hand, not-for-profit organizations calculate their net income simply by subtracting expenses from revenues, without paying any taxes. However, it is important to note that not-for-profit organizations may still be subject to the unrelated business income tax (UBIT), which we will discuss later. Nonetheless, the advantage of being a nonprofit organization is the exemption from income taxes. In this discussion, I am specifically referring to federal taxes, although it could also apply to state taxes. Moving on, let's talk about how to start a not-for-profit organization. First, you need to register with your state as a corporation. While this may seem like a federal matter, it is necessary to register at the state level. For example, in Pennsylvania, you would go to the Department of State's website, click on the registration forms, and choose the appropriate form to register your organization, such as a domestic business corporation or a trustee domestic nonprofit. After registering with the state, you need to register with the IRS using Form SS-4 to obtain your federal ID number. This federal ID number serves as the equivalent of a social security number for corporations. The form is not shown in its entirety here, but you can easily look it up. It is important to note that if you are a church or nonprofit organization, you...
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