The organization experienced unrelated business taxable income (UBTI) from the advertising but offset this income with a loss from its circulation activities.
Treasury regulations require that, when the right to receive an organization's periodicals is associated with membership in the organization and members have a legal right to receive the publications, a portion of the membership dues must be treated as circulation income.
The court found that, because the organization's members had a legal right to receive the magazines, a portion of the membership dues was circulation income as a result of this income allocation, there was no loss from the circulation activity and the organization owed unrelated business income tax on the advertising income. (National Education Association of the United States v. Commissioner, 137 TC No. 8, Sept. 28, 2011)