Expert: Harvey Mechanic - 10/22/2009

Question
Hello,

I am a bookkeeper for a 501(3)c non profit organization.
They have held cultural festival.
For the festival they printed a booklet for the festival program.
they had some sponsor like business owners or schools who donated this organization money. In return these sponsor's name and business information is printed in the booklet.
My question is this money a donation or program services income?

Thank you,


Meral Korucu  

Answer
First we need to decide whether the information printed in the booklet would be considered by the IRS as an Advertising  or a. Acknowledgment.

See the 1994 IRS publication "Corporate Sponsorship Income"
http://ftp.irs.gov/pub/irs-tege/eotopico94.pdf
especially page 10 "Advertising v. Acknowledgment"

Note also page 5 "The Announcement further stated that the
Service would not apply the guidelines to organizations that are
of a purely local nature and that receive relatively
insignificant gross revenue from corporate sponsors and that
generally operate with significant amounts of volunteer labor."

The IRS has instituted regulations at 26 CFR § 1.513-4, entitled
"Certain Sponsorship Not Unrelated Trade or Business"
and they may be read at:
http://law.justia.com/us/cfr/title26/26-7.0.1.1.1.0.3.87.html

Therein we see
---Start of Excerpt--
v) Advertising. For purposes of this section, the term
advertising means any message or other programming material which
is broadcast or otherwise transmitted, published, displayed or
distributed, and which promotes or markets any trade or business,
or any service, facility or product. Advertising includes
messages containing qualitative or comparative language, price
information or other indications of savings or value, an
endorsement, or an inducement to purchase, sell, or use any
company, service, facility or product.
---End of Excerpt--
http://pages.citebite.com/s1s8w0b5f0pdt
If something is advertising at all then it can not be called an
acknowledgment for purposes of the exception to the unrelated
business tax.

At section 1.513-4(c)(2), the IRS defines "Substantial return
benefit" and gives certain exceptions at
(c)(2)(iv) "the use or acknowledgment of the name or logo (or
product lines) of the payor's trade or business in connection
with the activities of the exempt organization."

From the meager facts I would not be able to inform you whether the information printed in the booklet is Advertising or an Acknowledgment.  If it is an acknowledgment, then the income is a donation.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com