May 2, 2002 | Read Time: 1 minute
Elizabeth Schwinn
The Internal Revenue Service has issued final regulations designed to guide charities that enlist corporations to support nonprofit 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 nonprofit football bowl games, symphony performances, and public-broadcasting productions. Charities must pay the tax on income from businesses that are not related to their missions.
The IRS drafted the rules to accompany a tax law that took effect on January 1, 1998. The final regulations, which went into effect April 25, come two years after the government issued a set of proposed rules.
The final rules explain how a charity can receive “qualified sponsorship payments” that are not considered 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. If a charity uses or acknowledges a company’s name or logo in connection with its event, such recognition would not be considered a substantial benefit to the company, according to the IRS, and the charity would not necessarily be required to count the company’s payment as unrelated-business taxable income.
The regulations clarify that payments other than “qualified sponsorship payments” are not automatically subject to unrelated-business income tax.
were published in the April 25 issue of the Federal Register and can be found online by going to http://www.access.gpo.gov/su_docs/aces/aces140.html and selecting the April 25 issue date with the search term “corporate sponsorship.”
