Corporate sponsorship proposed regulations issued.

• Author: Dillon, Randy

A new set of proposed regulations offers significant planning opportunities to exempt organizations with income from corporate-sponsored events. Corporate sponsorship agreements should be amended to conform with the new regulations.

In 1991 and 1992, the IRS issued Letter Rulings (TAMs) 9147007 and 9231001, concluding that two tax-exempt college bowl associations were subject to unrelated business income tax (UBIT) on income received from corporate sponsors. In essence, the Service contended that the associations provided advertising services to the corporate sponsors, and that the prominent display of the sponsor's name and logo during the event constituted more than mere "donor acknowledgment".

The proposed regulations show considerable responsiveness by the IRS to concerns expressed by the exempt organization community and offer considerable planning opportunities. Among other features, the proposed regulations adopt a relatively bright-line demarcation between taxable advertising services and nontaxable donor acknowledgments. In addition, the regulations expressly adopt the "exploited exempt activity" rules for taxable income from sponsored events.

The proposed regulations add new Regs. Sec. 1.513-4 and three new examples to Regs. Sec. 1.512(a)-1(e). Regs. Sec. 1.513-4 generally adopts a definition of advertising that parallels that used by the Federal Communications Commission for public broadcasting stations. In brief, a nontaxable acknowledgment may include the donor's name, logo, slogan, telephone number and address; "value-neutral" descriptions of the sponsor's products and/or services; and a listing of the sponsor's brands and/or trade names.

Nontaxable acknowledgments may not include comparative statements (e.g., "Tide, the best laundry detergent"); calls to action (e.g., "Buy Tide"); price information (e.g., "Tide is now on sale"); or an endorsement of, or inducement to buy, the sponsor's product. However, a logo or slogan that is an established part of a sponsor's identity (e.g., "Ford: The Best-Built American Cars") will not be considered to be comparative or qualitative.

Notwithstanding the relatively bright-line definitions, Regs. Sec. 1.513-4(c)(1) provides that the effect of the acknowledgment must be the identification of the sponsor rather than promotion of the sponsor's...