UBTI

Unrelated business taxable income is income from a trade or business unrelated to a tax-exempt organisation's exempt purpose, and it is taxable in the exempt entity's hands despite its exempt status. It matters to SPVs because pension plans, endowments, foundations, and US retirement accounts are common LPs, and UBTI allocated to them creates a filing obligation and a tax bill they did not expect. The two usual sources are debt-financed income, where leverage in the structure generates unrelated debt-financed income, and holding an interest in an operating partnership rather than in corporate stock. A vehicle holding unlevered stock in a C corporation generally produces no UBTI, which is one reason the plain Delaware LLC holding common or preferred shares remains the default.