FundSvcs Community

 View Only

  • 1.  Corporate Sponsor Benefit

    Posted 02-13-2024 10:07 PM
    Edited by Jeff Shin 02-14-2024 10:52 AM

    We have a few corporations that has agreed to a $10K sponsorship level towards an institution on campus.  One of the substantial benefits they will receive in exchange for this sponsorship are tickets to an event with a total FMV: $160. In the past, we would process this as a tax deductible charitable contribution with the $160 listed as the QPQ.

    Recently, we have been asked to process the entire $10K as a charitable donation and issue them a receipt without the QPQ value because the FMV of the benefits does not exceed the 2% amount of sponsorship payment.  Since this is a corporate sponsorship payment the insubstantial benefit limit of $132 does not apply.   Is this correct? 

    Treas. Reg. 1.513-4(c)(2)(ii) as any benefit other than a use or acknowledgement (explained below) or disregarded benefits. A benefit is disregarded if the aggregate fair market value of all the benefits provided to the payor during the organization's taxable year is not more than 2% of the amount of the payment.

    • Receives the following return benefits:
      1. Role as advisor to the USD Family Business. Four to six opportunities to help design
      and guide the program; plan and evaluate events; network with others who are
      passionate about and committed to the ongoing success of family businesses.
      2. Event and Speaking Opportunities. Recognition at symposiums on family business;
      influence on the planning and speakers; and leading at least one session during the
      year.
      3. Recognition in all promotional materials and on the website for USD Family Business
      Center.
      4. Silver Level sponsorship at the San Diego Angel Conference VI.
      a. Opportunity to participate in all SDAC track meetings and events
      b. Participation in all mentoring, networking, and referral sessions and opportunities
      c. Recognition in all materials related to SDAC IV
      d. Two tickets to SDAC IV final event (value $160)
      5. Membership to USD President's Club

    Any insight would be helpful.  

    Thank You



    ------------------------------
    Jeff Shin
    Associate Director of Advancement Services
    University Of San Diego
    shin@sandiego.edu
    ------------------------------



  • 2.  RE: Corporate Sponsor Benefit

    Posted 02-14-2024 05:30 AM
    I think you have been doing the right thing, Jeff.

    I believe that the list of benefits you provided essentially eliminates any deductibility. Numerous benefits offer more than insubstantial benefits to sponsors - benefits not available to non-donors. Take, for example, the President's Club membership. That qualifies you to attend additional events. There is a value there.

    The speaking opportunities also very likely allow the donor to mention disqualifying language regarding their business. Remember, just one utterance the IRS would deem "advertising" negates any possible gift. This also applies to the mentoring, networking, and referral sessions. At NC State Counsel added this include offering the sponsor a table or booth at an event as they would have an opportunity there to market their business.

    Furthermore, the section of the Treasury regulation cited is not a full treatment of the IRS rules defining substantial benefits. As you know, the IRS has a two-part limit for benefits - 2% or $132. However, that later figure changes annually and is updated in other IRS publications (note that even the IRS does not always keep up with this annually changing amount - even Publication 1771).

    I have been instructed that the "or" portion of the IRS benefit rules applies to all taxpayers. IRS rules amplifying the substantial benefits definition do not mention any exclusion for corporations or sponsors. If you think about it, the sponsorship ruling mentions in paragraph c, "any person engaged in a trade or business." That could apply to any employed individual. You could simply change your donor references and call everyone a sponsor!

    You'll want to seek guidance from an attorney specializing in nonprofit tax law. But they will also need to be familiar not with just this section of code but all references to benefits in exchange for contributions. I have been down this path at Duke and NC State and Counsel indicated that the definition of substantial benefit applies to all taxpayers.

    But even if a legal authority agrees that the "or" reference is void in corporate sponsorships, the fact that you are providing these two tickets AND President's Club membership, which provides tickets to other events, and a speaking opportunity at at least one other event (which likely has a price of admission) places the value (advertising opportunities excluded) above the 2% rule!

    John

    John H. Taylor, Principal
    John H. Taylor Consulting, LLC
    2604 Sevier Street
    Durham, NC     27705

    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987




    Original Message


  • 3.  RE: Corporate Sponsor Benefit

    Posted 02-14-2024 06:51 AM
    I neglected to mention that most of the IRS discussion surrounding corporate sponsorships relates to payments subject to UBIT. Here is a relevant paragraph from Advertising or Qualified Sponsorship Payments? | Internal Revenue Service (irs.gov)

    Sponsorship payments received by tax-exempt organizations has been an issue that the Service had struggled with in the past. The Service originally tried to address the issue by focusing on the nature of the services provided by the exempt organization rather than the benefit received by the sponsor, and distinguishing advertising, which is an unrelated trade or business activity from acknowledgements, which are not UBIT. In 1997, the issue was addressed by adding section 513(i), which governs the treatment of certain sponsorship payments by providing that "qualified sponsorship payments" are not subject to unrelated business income tax.

    Therefore, there are two different rules at play with corporate payments - one is this one as relates to UBIT. The other are the Final Substantiation Regulations (amplified in 526 and 1771) regarding benefits in exchange for gifts.

    John H. Taylor, Principal
    John H. Taylor Consulting, LLC
    2604 Sevier Street
    Durham, NC     27705

    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987


    On Wed, Feb 14, 2024 at 6:29 AM John Taylor <johntaylorconsulting@gmail.com> wrote:
    I think you have been doing the right thing, Jeff.

    I believe that the list of benefits you provided essentially eliminates any deductibility. Numerous benefits offer more than insubstantial benefits to sponsors - benefits not available to non-donors. Take, for example, the President's Club membership. That qualifies you to attend additional events. There is a value there.

    The speaking opportunities also very likely allow the donor to mention disqualifying language regarding their business. Remember, just one utterance the IRS would deem "advertising" negates any possible gift. This also applies to the mentoring, networking, and referral sessions. At NC State Counsel added this include offering the sponsor a table or booth at an event as they would have an opportunity there to market their business.

    Furthermore, the section of the Treasury regulation cited is not a full treatment of the IRS rules defining substantial benefits. As you know, the IRS has a two-part limit for benefits - 2% or $132. However, that later figure changes annually and is updated in other IRS publications (note that even the IRS does not always keep up with this annually changing amount - even Publication 1771).

    I have been instructed that the "or" portion of the IRS benefit rules applies to all taxpayers. IRS rules amplifying the substantial benefits definition do not mention any exclusion for corporations or sponsors. If you think about it, the sponsorship ruling mentions in paragraph c, "any person engaged in a trade or business." That could apply to any employed individual. You could simply change your donor references and call everyone a sponsor!

    You'll want to seek guidance from an attorney specializing in nonprofit tax law. But they will also need to be familiar not with just this section of code but all references to benefits in exchange for contributions. I have been down this path at Duke and NC State and Counsel indicated that the definition of substantial benefit applies to all taxpayers.

    But even if a legal authority agrees that the "or" reference is void in corporate sponsorships, the fact that you are providing these two tickets AND President's Club membership, which provides tickets to other events, and a speaking opportunity at at least one other event (which likely has a price of admission) places the value (advertising opportunities excluded) above the 2% rule!

    John

    John H. Taylor, Principal
    John H. Taylor Consulting, LLC
    2604 Sevier Street
    Durham, NC     27705

    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987




    Original Message


Related Content