Sponsorships offer opportunities for nonprofits, corporations.

• Author: Walker, Katrina D.

As the economy struggles, tax-exempt organizations are facing financial challenges. With declining endowments and decreasing charitable contributions, many exempt organizations are considering creative ways to obtain funding. Corporate sponsorships remain one excellent opportunity. If structured correctly, corporate sponsorship arrangements can provide an organization with tax-flee income that counts as public support to the organization while giving the corporate sponsor a tax-deductible expense and an opportunity to keep its name before the public.

Qualified Sponsorship Payments

Sec. 513(i) provides that a tax-exempt organization's solicitation and receipt of "qualified sponsorship payments" does not constitute an unrelated trade or business and hence does not trigger unrelated business income tax. A qualified sponsorship payment is any payment made by a person engaged in a trade or business for which there is no arrangement or expectation that such person will receive any substantial return benefit other than the use or acknowledgment of the name, logo, or product lines of the person's trade or business in connection with the recipient organization's activities.

Evaluating Return Benefits

Generally, when acknowledging a corporate sponsor, organizations may list the sponsor's location, telephone number, or internet address, and may provide a link to the sponsor's website. Value-neutral descriptions, including displays or visual depictions, of the sponsor's product line or services are permitted. Distribution, whether free or for remuneration, of a sponsor's product at the sponsored activity also will not result in a substantial return benefit.

Organizations should avoid using any wording that could turn an intended acknowledgment into advertising. Advertising includes messages containing qualitative or comparative language, price information, or other indications of savings or value, endorsements, and inducements to purchase, sell, or use particular products or services.

Organizations should also carefully consider any exclusivity arrangements. If an organization allows a business to be the exclusive sponsor of an event, the mere acknowledgment as exclusive sponsor generally does not result in a substantial return benefit. However, allowing the corporation to be an exclusive provider generally would result in a substantial return benefit. Exclusive provider arrangements generally include those that limit the sale, distribution...