The unrelated business taxable income of tax-exempt social clubs described in Internal Revenue Code section 501(c)(7) includes all gross income, less deductions directly connected with producing that income, but not including exempt function income . The dividends received deduction for corporations is not allowed in computing unrelated business taxable income, because dividends are not expenses incurred in producing income. For similar reasons, a club may not offset losses from activities conducted with members against its income from unrelated activities, such as investment income. A club does not recognize income when, within statutory time frames, it sells property used directly in performing its exempt function and acquires other property for such use. Additional information Examples - unrelated business income - 501(c)(7) organizations Social Clubs - IRC 501(c)(7) PDF: Nontraditional business income; allocation of member losses to taxable income - EO continuing professional education text article. UBIT: Current Developments PDF: Allowance of FICA tip credit under Code section 45B for tips received by employees - EO continuing professional education text article.