Nonprofit Law/UBIT


Can Google Adsense income be characterized as Royalty Income, thereby avoiding UBIT altogether?

I have in my profile that this free forum is only for general questions relating to IRS federal exemption issues of 501(c)(3) organizations and not for their unrelated or for-profit activities. But I will give you some guide.

On page 9, first column of IRS Publication 598 "Tax on Unrelated Business Income of Exempt Organizations" at there is a discussion of royalties:
--- Start of Excerpt ---
Royalties, including overriding roy-
alties are excluded in computing unrelated busi-
ness taxable income.
To be considered a royalty, a payment must
relate to the use of a valuable right. Payments
for trademarks, trade names, or copyrights are
ordinarily considered royalties. Similarly, pay-
ments for the use of a professional athlete’s
name, photograph, likeness, or facsimile signa-
ture are ordinarily considered royalties. How-
ever, royalties do not include payments for
personal services. Therefore, payments for per-
sonal appearances and interviews are not ex-
cluded as royalties and must be included in
figuring unrelated business taxable income.
---End of Excerpt---

Rev. Rul. 81-178, 1981-2 C.B. 135, holds that a payment, although excluded from UBIT as a royalty, the income from the licensing activity was income from unrelated trade or business
since the licensing agreements did not directly promote the group's exempt purposes. You can see an extensive discussion of the issue by the IRS at
There is a discussion of advertising on page 6 and it seems to conclude that an important fact that would tend to give the transaction the treatment of "royalty" is when the organization has active control over the content of the advertising.

You would need to read the Google contract (agreement) that they make with the sites to see how the income is classified there and that would be very important to understand how the IRS would treat that income.  I would be willing to work on your matter further, but I would need to spend a substantial amount of time reading your contract with Google and analyzing the relationship and that would be beyond the scope of my offer of free services.  If you want to inquire about hiring me for such work, please contact me directly to the email address below.

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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