IRS News Release  
January 19, 1993

IRS Proposes New Corporate Sponsorship Rules

The Internal Revenue Service said regulations it proposed today give clear guidance to tax exempt organizations such as college football bowls, museums and symphonies on the tax treatment of corporate sponsorship payments they receive.

The proposed rules apply to exempt organizations that hold events funded by payments from sponsors. Where the exempt organization acknowledges the sponsorship, the payments are tax exempt, but where the exempt organization offers a business service in exchange, such as advertising, the payments are taxable unrelated business income.

An exempt organization that displays a sponsoring corporation's logo or distributes samples of its products generally will not pay unrelated business income tax on payments from the sponsor because these activities are acknowledgements.

IRS said the proposed rules also define activities that are advertising and may result in unrelated business income tax. Examples of advertising are where a contract stipulates that the size of the sponsorship payment is dependent upon the size of the event's audience, or where references to the corporation's sponsorship include a promotion to buy the corporation's product.

IRS said the proposed regulations take into account public comments and suggestions requested in response to proposed audit guidelines issued last year. Under the new rules just proposed:

  • Sponsorship payments received are not advertising income merely because a contract exists between the exempt organization and the sponsor, or because of the frequency or prominence of the corporate logo display.
  • The size or type of exempt organization does not turn sponsorship payments into advertising income. In this regard, the rules apply uniformly to sponsorship of local and national exempt organization events.
  • All types of sponsorship activity involving broadcast, print and other forms of corporate acknowledgement or advertising are subject to the same rules.

Exempt organizations that engage in unrelated business activities may deduct the expenses of the unrelated business activity from the unrelated business income. Additionally, in certain situations, excess expenses relating to exempt activities may be deducted from unrelated business income.

IRS said the proposed regulations were filed with the Federal Register on Jan. 19, 1993 and will be published on Jan. 22, 1993. A public hearing is scheduled for July 8, 1993. Written comments and requests to speak at the hearing should be sent to IRS by April 30.

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