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CCH (cch.taxgroup.com) reports:

  A trust's margin-purchased securities constituted debt-financed property that produced income subject to the unrelated business income tax (UBIT). Reg. §1-514(b)-1(a), which interprets the UBIT to tax both periodic income and capital gains, is consistent with the definition of debt-financed property in
Code Sec. 514(b)(1). Furthermore, Code Sec. 512(b)(4) treats all income derived from debt-financed property as taxable and deriving from an unrelated trade or business. Imposition of the UBIT is also not limited to situations in which an exempt organization's business activities provide it with an unfair competitive advantage over taxable entities. Finally, the "inherent purpose" and "substantially related" exceptions to the UBIT were inapplicable. Although the use of debt-financed property was substantially related to the organization's purpose, selling that property to fund the organization was subject to the UBIT. Moreover, the trust did not establish that it could not support the university by any investment strategy other than the use of margin-purchased securities.

The Henry E. and Nancy Horton Bartels Trust for the Benefit of Cornell University, FedCl, 2009-2 USTC ¶50,475

Other References:

 
Code Sec. 512

  CCH Reference - 2009FED ¶22,837.30

 
Code Sec. 514

  CCH Reference - 2009FED ¶22,859.30

  Tax Research Consultant

  CCH Reference - TRC EXEMPT: 15,050
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CCH Reference - TRC EXEMPT: 18,104