Weekly Market Sales of Foundation Were Unrelated Business Income

A foundation was established to develop and support an alumni association, with most of its income derived from sales at a weekly art and craft bazaar that includes a farmers' market and refreshment booths held at a parking lot on campus every weekend throughout the year.  The university allowed the foundation to use the parking lot, and associated rest rooms and utilities without cost for two of the three years under examination.  Vendors at the bazaar had to pay an application fee and then a monthly fee for space at the bazaar.  The IRS, on examination asserted unrelated business income tax and rejected the foundation's view that the bazaar advanced the recruiting of students as mere speculation.  The IRS also rejected the foundation's claim that the bazaar lessened the burdens of government, citing Rev. Rul. 85-2 primarily because the bazaar is not required by the associated community college district.  Nor did the bazaar, as claimed by the foundation, relieve the distress of the elderly because they were the primary attendees at the bazaar.  The IRS rejected this claim primarily based on Rev. Rul. 77-246 and its factual distinctions.  The foundation made a fall-back claim that it was exempt from UBIT on the basis that its bazaar income was rent from real estate under I.R.C. Sec 512(b)(3).  The IRS rejected this view because the vendor fees were paid to have the opportunity to sell merchandise rather than to use real property.  Tech. Adv. Memo. 201544025 (Jul. 10, 2015).