Taxable Advertising or Nontaxable Sponsorship?
- Contributor
- Chad Singletary
Associations often have publications, such as a monthly magazine or newsletter, designed to keep members up to date on industry developments and trends. These publications often contain advertising spots designed to market industry-related products and services to the members of the Association. Although there are some exceptions, when an Association generates advertising income in this manner, it is typically considered Unrelated Business Income (UBI) under the Internal Revenue Code (IRC) and potentially exposes the Association to a tax liability on net advertising income.
In addition to publications, Associations also generate “advertising-ish” or sponsorship payments in other settings, such as educational meetings or annual conferences. The question is: How do we determine if these arrangements result in advertising income that is considered UBI and taxable or qualified sponsorship payments (QSP) that are to be excluded statutorily from UBI?
IRC Section 513(i)(1) defines a QSP. Specifically, a QSP is a payment by an entity engaged in a trade or business to an exempt organization without an arrangement or expectation that the sponsor will receive a substantial return benefit. This is the only requirement. Therefore, when an Association determines the proper tax treatment for these payments, it must consider characteristics attributed to a “substantial return benefit” by the IRC. Characteristics attributed to a “substantial return benefit” by the IRC include:
Associations rely on sponsorship payments to fund critical member programs effectively. By carefully planning and structuring these opportunities to qualify as nontaxable Qualified Sponsorship Payments (QSPs), your organization can access a tax-efficient funding source.
Are you looking to enhance your Association’s financial strategies? Reach out to your CRI advisor today. Our experts will help you explore how QSPs can support your programs without the tax implications and guide you every step of the way in optimizing your funding structure. Let CRI assist you in navigating the complexities of QSPs and charting the best course for your Association’s future.
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