Are Your Event Sponsors Actually Advertising?

Glen Swanson, CPA and TDT Assurance Manger, will discuss the differences between sponsorships and advertisements and how they impact income tax. Glen specializes in audits of nonprofit organizations, family-owned businesses, and employee benefit plans and has more than 10 years of experience in public accounting.

Event programs are a great way for nonprofits to share their story and give details about their event. They’re also a great way for nonprofits to bring in additional revenue. We’ve all seen sponsor information included in event programs, but have you ever questioned whether that information is classified as sponsorship or advertising revenue?

Sponsorship or Advertisement – Does Anyone Really Care?

A nonprofit’s goal is to get cash in the bank by filling blank spaces in the event program; the organization doesn’t necessarily care which type of revenue it is. But, as you might have guessed, the IRS definitely cares whether revenue is generated from sponsorships or advertisements. In general, revenue from sponsorships is exempt from taxation; however, revenue from advertisements is subject to unrelated business income tax (UBIT).

So, What’s the Difference?

In broad terms, when someone pays for a sponsorship, they expect nothing more than to have their name and logo published as an event sponsor. An advertiser also expects to have their name and logo published, but they want more – an opportunity to encourage the purchase of their product or service. If an event program includes anything about a sponsor’s product lines, pricing information, hours of operation, etc., the IRS will consider the sponsor’s payment to be advertising revenue.

The example below illustrates the concept above. As part of our commitment to our local communities, TDT sponsors various events throughout the year. If we are just a “sponsor,” our feature may look like this:

TDT CPAs and Advisors, P.C.
Tel: 515.657.5800
1240 Office Plaza Drive
West Des Moines, IA 50266

However, if we’re an “advertiser,” it may look more like this:

TDT CPAs and Advisors, P.C.
Tel: 515.657.5800
1240 Office Plaza Drive
West Des Moines, IA 50266
Providing services to over 350 nonprofit organizations.
Call us today to see how we can partner with you!

 

The two lines at the end make a huge difference in how the IRS views revenue. When organizations are in a mad dash to finalize their event and get things printed, few people will stop to think about whether sponsors may actually be advertising.

Regulation in this area can get quite technical. Unless you routinely deal with differentiating sponsorships from advertisements, we suggest contacting a professional the next time you begin planning an event. Once an event program is printed, it’s too late for revisions to avoid an unexpected UBIT bill at year end. TDT CPAs and Advisors has a team of professionals that can help nonprofits understand the difference between sponsorships and advertisements – call us to discuss your situation.

By |2018-07-13T11:03:22+00:00June 5th, 2018|Fundraising, IRS, Nonprofit, TAX|

About the Author: