Sponsorship or Advertising?

CPAs at Maner, Costerisan & Ellis, P.C. asked this question in their latest newsletter, Nonprofit Agendas. Chambers of commerce are frequently susceptible to walking the line between sponsorships and advertising when underwriting events. However, how they treat the sponsoring business can significantly change their unrelated business income tax (UBIT) liability.

Here are some of the guidelines the CPAs provided:

• Sponsorships list sponsors names or logos only, list contact information, and objectively describe products and services.
• Sponsorships may include giveaway items.
• Sponsorships cannot be an agreement for a contingent payment (i.e., based on number of attendees) or be attached to publications

Advertising, or the promotion of a sponsor's products or services, is subject to UBIT. Caveats to be aware of:

• Advertising contains qualititave or comparison lanaguage
• Advertising calls for the action to buy or use a product or service
• Advertising includes exclusive provider agreements or exchange of significant services or privileges

Sometimes the benefits of advertising revenue outweigh the tax liability. The authors use the following example: A sponsor may make a $5,000 contribution toward an event, receive $200 in advertising benefits (subject to UBIT) and $4800 in charitable contribution benefits (tax deductible).

What's important is understanding what the tax implications are before offering and entering into a relationship with a potential sponsor. Check with your accounting services provider for information specific to your own programs.