Question:

Research Problem 1. Wonderful Wilderness, Inc., is a tax-exempt organization. Its mission is to "explore, enjoy, and protect the wild places of the earth; practice and promote the responsible use of the earth's ecosystems and resources; educate and enlist humanity to protect and restore the quality of the natural and human environ- ment; and use all lawful means to carry out these objectives."

Lloyd Morgan, the chief financial officer, presents you with the following infor- mation. Wonderful Wilderness raises funds to support its mission in a variety of ways, including contributions and membership fees. As part of this effort, Wonder- ful Wilderness develops and maintains mailing lists of its members, donors, catalog purchasers, and other supporters.

Wonderful Wilderness holds exclusive ownership rights to its mailing lists. To ac- quire the names of additional prospective members and supporters, Wonderful Wil- derness occasionally exchanges membership lists with other organizations. In addition, Wonderful Wilderness permits other tax-exempt organizations and com- mercial entities to pay a fee, as set forth in a fee schedule, to use its mailing lists on a one-time basis per transaction.

Morgan is aware that the Federal income tax law applies a UBIT. He is also aware of the § 512(b)(2) provision that excludes royalties from the UBIT. An IRS agent has raised the issue that the revenue from the use of the mailing lists by other entities may be taxable as unrelated business income. Morgan wants you to research this issue for him.

Write a letter to Morgan that contains your findings, and prepare a memo for the tax research files. Wonderful Wilderness's address is 100 Wilderness Way, Pocatello, ID 83209.