On Nonprofits
©
June 2006
The “Benefits”
of Sponsorship
Q:
I have a question about sponsorship. When people
sponsor an event, what guidelines can we use to
assess deductibility? For instance, it is clear
that any tickets they are given to the event are
non-deductible for the fair market value, just
as for any other participants. However, what about
the other, less tangible, benefits such as a marketing
presence?
A:
First, let me say that I’m glad you brought
up the point that when an individual goes to claim
a deduction for his or her sponsorship, the fair
market value of such “benefits” as
“free” tickets must be subtracted.
Too many people are not aware of or do not think
about this. So you’ve contributed to the
educational value of this column already.
The
issue of the less tangible benefits to a sponsor
is an important one – and something we will
discuss. However, it also requires us to talk
about the thin line an organization walks, potentially
opening it to paying unrelated business income
tax (UBIT).
Certainly,
some people will choose to sponsor your event
strictly as a means of supporting your organization.
Others will do it because they can’t say
no to the person who solicited them. However,
few of us would question that most people see
a marketing value to their sponsorship, especially
if they accept the responsibility for sponsorship
on behalf of their business. The IRS does not
expect the organization to assign a value to this
for deductibility purposes.? What it does expect
is that the organization distinguish between marketing
and advertising.
Guidelines
are found under the Taxpayer Relief Act of 1997.
You may publicly thank the sponsor, display the
sponsor’s logo, name the event after the
sponsor and give out samples of the sponsor’s
product at the event. (Marketing) You may not
urge people to support the sponsor. Nor may you
endorse the sponsor by using such value-laden
words as “the best.” You can’t
ask people to buy the sponsor’s goods or
services. (All advertising and subject to a tax
liability) If the sponsor requires that you hand
out product samples, that’s advertising.
If the sponsor buys space in an ad journal, it’s
advertising! (Even if there is no commercial intent
in doing so, the IRS sees commercial value in
the “goodwill” the sponsor receives
for buying such an ad.) Does your financial backing
hinge on having an exclusive relationship with
the sponsor? Is the amount of the sponsorship
tied to a certain level of exposure such as attendance?
These would be seen as proof of an advertising
contract.
Accepting
advertising is not bad. If the promised monies
are large enough it may benefit the organization
to pay the UBIT. However, you want to be sure
you know when you are crossing the line.
Terrie
Temkin, Ph.D. is an internationally recognized governance
and planning expert. She is president of NonProfit
Management Solutions, Inc., a principal in CoreStrategies
for Nonprofits, Inc., and a longtime member of AFP.
Contact her at terriet@nonprofitmanagementsolutions.com,
954-985-9489, or 866-985-9489.
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