The IRS, in a later Private Letter Ruling (PLR 200104031), reversed itself determined that income received by an educational consortium for the lease of tower and satellite dish space (physical facilities) are rents, which are not related to the mission of the consortium, and are taxable as unrelated business income. In this Ruling, the broadcast towers were determined to be personal (not real) property. All rents from real property are excluded from taxation by the definition of unrelated business income” in Section 512(b)(3)(A) of the Internal Revenue Code. The pivotal issue in these two rulings was whether the broadcast tower was real or personal property.

Property that is permanently affixed to real estate is generally considered to be real property, not personal property. Perhaps what the IRS was concerned about was the fact that the educational institution was competing with private companies that are in business leasing space on broadcast towers.

Below is a link to a draft generic tax opinion on the issue of whether payments that are received by an EBS Licensee for the lease of educational broadcast spectrum and paid by a commercial wireless operator are “royalties,” under the Internal Revenue Code. Royalties are passive income and therefore not considered to be “unrelated business income” and not subject to federal income tax.

NOTE: This draft generic opinion may or may not apply to other EBS licensees, depending upon the facts of each situation, and cannot be relied upon as legal advice from an attorney for any other nonprofit organization or government entity. This opinion could provide references of pertinent legal authorities that can be used by other attorneys in conducting research and formulating an opinion for a specific nonprofit organization. It is posted here to provide an analysis of pertinent issues so that other nonprofits will be prepared to provide all of the needed factual information to their legal counsel and to ask the right questions of their own attorneys.