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 DevelopmentsPDF: Allowance of FICA tip credit under Code section 45B for tips received by employees - EO continuing professional education text article.