As stated in the U.S. Internal Revenue Code, any income derived from a business activity that is not related to the tax-exempt purpose of the organization is subject to taxation. An exempt organization must file a Form 990-T if unrelated business income exceeds $1,000.
For example, a university runs an ice-cream parlor located on campus. Due to the educational purpose of the institution, the university is tax-exempt but generates income from the ice-cream shop. While tuition is tax-free, any income derived from ice-cream shop is unrelated and is subject to taxation.