March 9, 2000 | Read Time: 1 minute
The Internal Revenue Service has issued proposed regulations designed to guide charities that enlist corporations to support non-profit events.
The government’s proposal clarifies when charities can accept corporate sponsorships and avoid paying unrelated-business income tax on revenue they receive from such events as non-profit football bowl games, symphony performances, and public-broadcasting productions. Charities must pay the tax, called UBIT, on income from businesses that are not related to their missions.
The I.R.S. drafted the rules to accompany a tax law that took effect on January 1, 1998.
The proposal explains how a charity can receive “qualified sponsorship payments” that are not unrelated-business taxable income, as long as there is no arrangement or expectation that the company will get a “substantial return benefit” for spending the money. Falling outside the definition of “substantial benefit” is the use or acknowledgment of the company’s name or logo in connection with the charity’s event.
The I.R.S. says that charities could avoid tax while holding a single event (such as a bowl game, a walkathon, or a television program), a series of related events (such as a concert series or a sports tournament), or an activity of extended or indefinite duration (such as an art exhibit).
The revenue service provides nine detailed examples to explain how it would treat different kinds of sponsorship arrangements.
The tax agency has scheduled a public hearing on the proposed rules for June 21 at I.R.S. headquarters, in Washington. Comments must be submitted by May 30.
The proposal was published in the March 1 issue of the Federal Register, Pages 11,012-11,019. The rules can also be found by following the instructions for reading the Federal Register on a government Web site at http://www.access.gpo.gov/su_docs/fedreg/frcont00.html.
