Assume that some money was deposited in a bank for uses related to a 501(c)(3) organization's tax-exempt purpose; some transactions were made; and sometime later, the bank credited an “account opening bonus” to the charity. The bank states that they will send a 1099-INT form; is this income reportable or taxable?
We all know that charities are exempt from federal income tax — except when they are not. They can be liable for unrelated business income tax (“UBIT”) if they generate unrelated business taxable income. UBIT is applied to income from a trade or business that is regularly carried on and unrelated to the purpose for which the organization is exempt. Even the definition has some “modifications” and exclusions for certain kinds of income that would otherwise fit within the definition, however, like the income from dividends or interest on passive investments in the stock market (or a bank savings account), or rental income from real estate that is not subject to a mortgage or other acquisition indebtedness. (See Ready Reference Page: “Nonprofits Often Worry About UBIT”). Your group is probably getting 1099s of various types of income now that you file away without paying taxes on the amounts reported.
Income from a single account opening bonus doesn’t sound like a trade or business or an activity that is regularly carried on. You might be able to make it a trade or business that is regularly carried on if you open a new account at a new bank every month and collect the couple hundred dollar bonus each time. But I suspect that you have better ways to spend your time and energy than to develop bank account opening bonuses as a continuous trade or business. For a one-shot deal, just file the 1099 with your other income records and forget it.
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