Sponsorship

[Armando Beaujolais]

Youth sports organization. Qualified charitable organization, listed with the IRS.

In soliciting donations from businesses in the area, how far can the organization go in putting business names on materials? At what point does this become advertising? I know the organization can list the names of donors on a newsletter, but what about putting up banners for the business at the field, etc?

I remember reading something about this a few years ago, but can't remember where. There's a point where a payment to a charitable organization stops being a charitable donation and starts being a sale of advertising. Anyone have any ideas?

[Gretel]

I am most interested in a response to this. I have the same situation with a 501(c)3.

The businesses who donate call it advertising no matter how little recognition they get.

[gman]

501 C 3

If you are a 501 c 3, does this make you a qualified charitable organization??

[Matt Sova]

501(c)(3)

Contributions to these organizations are deductible. However, in a corporation, charitable contributions are limited based on net corporate income. Even in an S-Corp, if the owner cannot itemize, they would get no benefit from the contribution. So when charities ask for corporate sponsors for events they put the corp info in the program or on banners or tee boxes and greens at golf events thereby making the payment advertising expense as opposed to charitable contributions.

[Armando Beaujolais]

I did some checking and here's what I came up with.

I think it's fine for the sponsoring business to write it off as advertising, the question is whether the receiving organization has to treat it as unrelated business taxable income (UBIT).

It's in Regulation 1.513-4, "Certain sponsorships not unrelated trade or business."

Basically it looks to me like you can acknowledge a business that gives a donation all you want, but you can't cross the line where you're promoting them. For example, you can identify "Joe's Pizza" and logo on apparel, in flyers, etc., but you can't say "Eat at Joe's Pizza."

There's also a 2% de minimis rule for benefits provided to the donor.

Reg. 1.513-4(f)(5)


EXAMPLE 5. Q organizes an amateur sports team. A major pizza chain
gives uniforms to players on Q's team, and also pays some of the
team's operational expenses. The uniforms bear the name and
established logo of the pizza chain. During the final tournament
series, Q distributes free of charge souvenir flags bearing Q's name
to employees of the pizza chain who come out to support the team. The
flags are valued at less than 2% of the combined fair market value of
the uniforms and operational expenses paid. Q's use of the name and
logo of the pizza chain in connection with the tournament constitutes
acknowledgment of the sponsorship. Because the fair market value of
the flags does not exceed 2% of the total payment, the entire amount
of the funding and supplied uniforms are a qualified sponsorship
payment, which is not income from an unrelated trade or business.

[Gretel]

So, in other words: As long as you have recognition levels on how much you put the business name out at an event for that level it's not UBI. But if you favored one business independent form these recognition levels, then you have UBI, unless 2% deminimus.

Did I get that right?

[Armando Beaujolais]

So, in other words: As long as you have recognition levels on how much you put the business name out at an event for that level it's not UBI. But if you favored one business independent form these recognition levels, then you have UBI, unless 2% deminimus.

Did I get that right?

In the regs they talk about displaying things like qualitative and comparitive descriptions, phone numbers, locations, price, etc.

Just having a person's name or product somewhere does not trigger UBIT. The reg also says:

"Mere display or distribution, whether for free or remuneration, of a payor's product by the payor or the exempt organization to the general public at the sponsored activity is not considered an inducement to purchase, sell or use the payor's product for purposes of this section and, thus, will not affect the determination of whether a payment is a qualified sponsorship payment."


I'm not sure about favoring one business with a bigger name on the banner, etc. I suppose that could be looked at as a comparative description and would not qualify.

[Gretel]

Thanks, Armando.

A lot of organizations have recognition levels: bronze, silver, gold etc. which are expressed as having the donor's name on top of the list or printed in bold. I don't think this will trigger anything. It's still just a display of the name.

At our event certain sponsors will have their name displayed on banners and donors who give more than $1,000 will also have their business name announced before and after each live show. I will consider all of this as a display of the name only.

I would be nice to have someone respond to this thread who has actually experience in this area. Maybe I will call the IRS on this (I know, I know, don't say anything). Some years ago I had a very good experience talking to their special department in regards to non-profit questions. The person I talked to back then was very knowledgable.