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Today the Treasury and IRS issued final regulations that help charities and other tax-exempt organizations determine the tax treatment of the payments they receive from corporations and other businesses. Qualified sponsorship payments are not taxable.
Charities and other tax-exempt organizations rely on the support they receive from individuals and corporations. It is important that the organizations know how the money received from corporations and businesses will be taxed. These final regulations explain what qualified sponsorship payments are, and that they are not subject to the unrelated business income tax, stated Pam Olson, Acting Treasury Assistant Secretary for Tax Policy.
Qualified sponsorship payments generally are treated as contributions to the tax-exempt organization. A payment by a business is a qualified sponsorship payment only if the business does not expect to receive any substantial return benefit in exchange for making the payment. Mere use or acknowledgement of the business' name or logo in connection with the activities of the tax-exempt organization is not a substantial return benefit. However, if the business receives advertising (or other benefits) in exchange for making a payment, then the payment may be considered payment for the advertising or other benefits. In that case, only the amount of the payment (if any) that exceeds the fair market value of the benefits is a qualified sponsorship payment. For purposes of applying these rules, benefits provided to a sponsor may be disregarded if the aggregate fair market value of the benefits does not exceed 2% of the total payment received from the sponsor.
The final regulations clarify that payments other than qualified sponsorship payments are not automatically subject to unrelated business income tax. Instead, the tax treatment of those payments is determined under existing unrelated business income tax rules.